Partial vertical integration under moral hazard

Abstract

This thesis examines the strategic implications of partial vertical integration in oligopolistic markets with price competition, where firms face moral hazard. It analyzes how different degrees of integration influence firm behavior and market dynamics, contrasting partial integration with full integration and complete separation. The study reveals that partial integration emerges as a strategic response when products are imperfect substitutes. By adopting this strategy, firms can effectively manage moral hazard and align incentives along the value chain. This is achieved through a combination of collaborative control and operational autonomy, enabling firms to adapt quickly to market changes while maximizing joint benefits.