Vertical exclusion with downstream risk aversion or limited liability
File(s)
Accepted version
Author(s)
Hansen, Stephen
Motta, Massimo
Type
Journal Article
Abstract
An upstream firm with full commitment bilaterally contracts with two exante identical downstream firms. Each observes its own cost shock, and facesuncertainty from its competitor’s shock. When they are risk neutral and canabsorb losses, the upstream firm contracts symmetric outputs for productionefficiency. However, when they are risk averse, competition requires thepayment of a risk premium due to revenue uncertainty. Moreover, whenthey enjoy limited liability, competition requires the upstream firm to shareadditional surplus. To resolve these trade-offs, the upstream firm offersexclusive contracts in many cases.
Date Issued
2019-09
Date Acceptance
2019-01-07
Citation
The Journal of Industrial Economics, 2019, 67 (3-4), pp.409-447
ISSN
0022-1821
Publisher
Wiley
Start Page
409
End Page
447
Journal / Book Title
The Journal of Industrial Economics
Volume
67
Issue
3-4
Copyright Statement
© 2020 The Editorial Board of The Journal of Industrial Economics and John Wiley & Sons Ltd. This is the accepted version of the following article: Hansen, S. and Motta, M. (2019), Vertical Exclusion with Downstream Risk Aversion or Limited Liability. J Ind Econ, 67: 409-447, which has been published in final form at https://doi.org/10.1111/joie.12212
Identifier
https://onlinelibrary.wiley.com/doi/full/10.1111/joie.12212
Subjects
Social Sciences
Business, Finance
Economics
Business & Economics
CONTRACTS
Economics
1401 Economic Theory
1402 Applied Economics
1403 Econometrics
Publication Status
Published
Date Publish Online
2020-02-05