Price setting is popular among firms selling to consumers driven in their buying decisions mostly by price signals since they take for granted availability of goods. Is this enterprise behaviour justified when production is vertically organized along several stages? To answer this question, we go through the decision to vertically integrate and its opposite, outsource, in an uncertain environment. We consider two different market strategies, price setting and quantity setting and two different vertical relationships: a non symmetric (imperfectly) competitive one and a cooperative one based on a bargaining among vertical sections of production. In the first scenario, with certainty, price and quantity settings are alike, while with uncertainty quantity setting is preferred by firms. With bargaining and quantity setting, uncertainty leads to an asymmetric distribution of gains along the vertical chain of production. JEL Classification: L1 Keywords: Vertical Integration, Uncertainty, Stackelberg, Bargaining

Price setting is popular among firms: will it persist in vertical relationships with market uncertainty?

ROSSINI, GIANPAOLO
2009

Abstract

Price setting is popular among firms selling to consumers driven in their buying decisions mostly by price signals since they take for granted availability of goods. Is this enterprise behaviour justified when production is vertically organized along several stages? To answer this question, we go through the decision to vertically integrate and its opposite, outsource, in an uncertain environment. We consider two different market strategies, price setting and quantity setting and two different vertical relationships: a non symmetric (imperfectly) competitive one and a cooperative one based on a bargaining among vertical sections of production. In the first scenario, with certainty, price and quantity settings are alike, while with uncertainty quantity setting is preferred by firms. With bargaining and quantity setting, uncertainty leads to an asymmetric distribution of gains along the vertical chain of production. JEL Classification: L1 Keywords: Vertical Integration, Uncertainty, Stackelberg, Bargaining
2009
Firms' objectives and internal organization in a global economy
33
50
Gianpaolo Rossini
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11585/79387
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