TILEC Seminar: Marco Pagnozzi (University of Naples Federico II))

Marco Pagnozzi is Professor of Economics at the University of Naples Federico II, Director of the Master in Economics and Finance and of the Laurea Magistrale in Economic sand Finance, and research fellow at CSEF.

He has a Ph.D. in Economics from Oxford University and a Doctorate in Applied Mathematics from the University of Naples Federico II.

His research focuses on auction theory, industrial organization, information economics and experimental economics.

Vertical Contracting with Endogenous Market Structure

by Marco Pagnozzi , Salvatore Piccolo and Markus Reisinger)

We analyze vertical contracting between a manufacturer and retailers who have correlated private information. The manufacturer chooses the number of retailers and secretly contracts with each of them. We highlight a new trade-off between limiting competition and reducing retailers’ information rents that shapes the optimal size of the distribution network and thus affects social welfare and consumer surplus. In contrast to previous literature, we show that the manufacturer may choose a number of retailers that exceeds the socially optimal one, and that vertical integration can be procompetitive. These results are robust to different out-of-equilibrium beliefs by retailers.

Keywords: asymmetric information, distribution network, opportunism, retail market structure, vertical contracting.