I contrast various models of vertical contracting that view upstream interactions either through the lenses of bilateral contracting and negotiations or through the lenses of a "market interface" with uniform contractual terms. Existing models contrast starkly in their policy implications, in...

A firm advises customers through an agent, such as a mortgage broker, who is incentivized through commissions and the threat of firing. We show that this implies an upper boundary for the feasible "standard of advice", up to which the standard increases with commissions.

For an assessment of market power on the wholesale (or merchant) market in the presence of vertically integrated firms, we analyze the interaction of direct constraints, arising from competition on the wholesale market, and of indirect constraints, arising from substitution on the retail market....

This paper poses the question of how a firm should optimally choose both its organization and its compensation in the pursuit of innovation. One key result is that incentive pay arises as a robust instrument of innovation management both with and without delegation, although in the present model...

We consider bargaining between a seller and a buyer with private information about his valuation. We introduce the novel feature that with some probability a new buyer may visit the seller's shop each period, which grants the seller the option to switch to a new trading partner. We analyze the...

In an internal capital market, individual departments may compete for a share of the firm's budget by engaging in wasteful influence activities. We show that firms with more levels of hierarchy may experience lower influence costs than less hierarchical firms, even though the former provide more...

This paper presents a theory of integration based on the inability of parties to write comprehensive financial contracts. In our model, integration entails both benefits and costs. On the one hand, integration involves liquidity spillovers between projects ensuring that integrated firms can...

We consider a game of signaling where the informed sender proposes a contract, which can only be accepted or rejected by the receiver. While most of the literature considers a bilaterally monopolistic setting, we embed the game in a search market environment where a sender may switch to another...

This paper considers a dynamic version of Akerlof's (1970) lemons problem where buyers and sellers must engage in search to find a trading partner. We show that if goods are durable, the market itself may provide a natural sorting mechanism. In equilibrium, high-quality goods sell at a higher...

We examine the effect of competition for scarce corporate financial resources on managers' incentives to generate profitable investment opportunities. Operating an active internal capital market is unambiguously beneficial only if divisions have the same level of financial resources and the same...