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on Contract Theory and Applications |
| By: | Markus Dertwinkel-Kalt; Mats Köster; Florian Peiseler |
| Abstract: | In many markets supply contracts include a series of small, regular payments made by consumers and a single, large bonus that consumers receive at some point during the contractual period. But, if for instance its production costs exceed its value to consumers, such a bonus creates inefficiencies. We offer a novel explanation for the frequent occurrence of bonus contracts, which builds on a model of attentional focusing. Our main result identifies market conditions under which bonus contracts should be observed: while a monopolist pays a bonus to consumers - if at all - only for low-value goods, firms standing in competition always - i.e., independent of the consumers’ valuation - offer bonus contracts. Thus, competition does not eliminate but rather exacerbates inefficiencies arising from contracting with focused agents. Common contract schemes in markets for electricity, telephony, and bank accounts are consistent with our model, but cannot be reconciled with alternative approaches such as models on consumption smoothing, (quasi-)hyperbolic discounting, or switching costs. |
| Keywords: | attention, focusing, bonus contracts |
| JEL: | D91 D18 D40 L10 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7539&r=all |
| By: | Bedri Kamil Onur Tas |
| Abstract: | I examine a manipulation scheme that public authorities can use to exercise more discretion in public procurement. I propose that regression discontinuity manipulation tests can be implemented to identify manipulative authorities. I investigate the European Union public procurement data set. I find that 10-13% of examined authorities have high probabilities of bunching estimated costs just below thresholds. Manipulative authorities have significantly lower probabilities of employing competitive procurement procedure. The bunching manipulation scheme significantly diminishes cost-effectiveness of public procurement. On average, prices of below threshold contracts are 18-28% higher when the authority has an elevated probability of bunching. |
| Keywords: | Public Procurement, Manipulation, Competition, European Union |
| JEL: | C31 D44 H57 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:rsc:rsceui:2019/17&r=all |
| By: | Elias Carroni; Leonardo Madio; Shiva Shekhar |
| Abstract: | This article studies incentives for a premium provider (Superstar) to offer exclusive contracts to competing platforms mediating the interactions between consumers and firms. When platform competition is intense, more consumers subscribe to the platform hosting the Superstar exclusively. This mechanism is self-reinforcing as firms follow consumer decisions and (some) join exclusively the platform with the Superstar. Exclusivity always benefits firms and may benefit consumers. Moreover, when the Superstar is integrated with a platform, non-exclusivity becomes more likely than if the Superstar was independent. This analysis provides several implications for managers and policy makers operating in digital and traditional markets. |
| Keywords: | exclusive contracts, platforms, two-sided markets, ripple effect, content providers, market power |
| JEL: | L13 L22 L86 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7535&r=all |
| By: | Fariha Kamal; Asha Sundaram |
| Abstract: | Do institutions shape the geographic concentration of industrial activity? We explore this question in an international trade setting by examining the relationship between country-level institutions and patterns of spatial concentration of global sourcing. A priori, weak institutions could be associated with either dispersed or concentrated sourcing. We exploit location and transaction data on imports by U.S. firms and adapt the Ellison and Glaeser (1997) index to construct a product-country-specific measure of supplier concentration for U.S. importers. Results show that U.S. importers source in a more spatially concentrated manner from countries with weaker contract enforcement. We find support for the idea that, where formal contract enforcement is weak, local supplier networks compensate by sharing information to facilitate matching and transactions. |
| Keywords: | buyer-seller match, global sourcing, contract enforcement, institutions, spillovers, trade |
| JEL: | F1 F14 R12 |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:cen:wpaper:19-05&r=all |