By: Flavio Jacome, Andrés Mejia Villa, Karen Mendoza Manjarres
This paper analyzes a Bertrand competition model with differentiated goods, in order to determine optimal decisions when the owners can use vertical integration and managerial contracts as strategic tools. The equilibrium results are: i) the owners always delegate control to a manager who is encouraged to be less aggressive in sales; ii) there is no vertical integration when goods are highly homogeneous. iii) social welfare is never the highest that can be achieved.
Full Content: SSRN
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