Abstract

JACOME LIEVANO, Flavio; MEJIA VILLA, Andrés  and  MENDOZA MANJARRES, Karen. Vertical integration and managerial contracts: strategic tools in imperfect markets. Rev.econ.inst. [online]. 2014, vol.16, n.31, pp.127-156. ISSN 0124-5996.

This paper analyzes a Bertrand competition model with differentiatedgoods, 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.

Keywords : Bertrand competition; differentiated goods; vertical integration; managerial contracts; Nash Equilibrium.

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