Description

In the literature on vertical integration little attention has been paid to the role of strategic uncertainty, that is, the presence of multiple selfenforcing outcomes which might lead to coordination failure. However, the natural solution to this problem, which is vertical integration, is not the only way out if the agents have some degree of freedom in designing the industrial relations they engage. A game-theoretic model is provided to show how some of the most popular forms of vertical contractual relations can be derived as equilibria of a multi-stage game in which firms bargain over their reciprocal vertical control, in order to minimize the inefficiency created by strategic uncertainty.

(with Lisa De Propriis and Giovanni Ponti)