Incomplete Contracts and Industrial Organization: A Survey∗

While most researchers in industrial organization agree that the neoclassical, cost-minimizing, unitary, view of the firm is restrictive, it is still the main object of anlysis in the literature. We review the literature in industrial organization and the place occupied by a richer view of the firm both before and after Grossman & Hart (1986) (GH). Before GH, integration was viewed as a way to alleviate hold-up problems, agency or market power distorsions; GH pointed out that integration and ownership reallocation create their own incentive problems. We show how this insight can enrich the usual analysis of firms with market power but also opens the door for a rich set of questions in more competitive environments. ∗Prepared for presentation at the conference Grossman and Hart 25 on June 24-26, 2011 at the Université libre de Bruxelles. We thank our discussants Mathias Dewatripont and Kai-Uwe Kühn as well as the audience for their comments. †Université libre de Bruxelles, ECARES, 50 avenue F.D. Roosevelt, 1050 Brussels, Belgium, e-mail: [email protected], home page: http://plegros.net ‡Boston University, Department of Economics, 270 Bay State Road, MA, 02215, e-mail: [email protected], home page: http://people.bu.edu/afnewman/