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on Contract Theory and Applications |
| By: | Basak, Debasmita |
| Abstract: | We consider a vertically related market where one quantity setting and another price setting downstream firm negotiate the terms of a two-part tariff contract with an upstream input supplier. In contrast to the traditional belief, we show that when bargaining is decentralised, the price setting firm produces a higher output and earns a higher profit than the quantity setting firm. And, when bargaining is centralised, both firms produce the same output whereas the profit is higher under the price setting firm than the quantity setting firm. |
| Keywords: | Bargaining; Bertrand; Cournot; Two-part tariffs; Vertical pricing; Welfare |
| JEL: | L13 L2 L22 |
| Date: | 2021–09–04 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:109588&r= |
| By: | Takeshi Murooka (Osaka School of International Public Policy (OSIPP), Osaka University); Takuro Yamashita (Toulouse School of Economics, University of Toulouse) |
| Abstract: | We study an adverse selection environment, where a rational seller can trade a good of which she privately knows its value to a buyer, and there are gains from trade. The buyer's types differ in their degree of inferential abilities: A rational type correctly infers the value of the good from the seller's offer, whereas a naive type under-appreciates the correlation between the seller's private information and offer. We characterize the optimal menu mechanism that maximizes the social surplus. Notably, no matter how severe the adverse selection is (in particular, even when no trade is the unique possible outcome if all agents are rational), all types of buyers trade in the optimal mechanism. The rational buyer's trade occurs at the expense of the naive buyer's losses. We also investigate a consumer-protection policy of limiting the losses and discuss its implications. |
| Keywords: | adverse selection, inferential naivety, mechanism design, behavioral contract theory, consumer protection |
| JEL: | D82 D86 D90 D91 |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:osp:wpaper:21e006&r= |
| By: | Seungjin Han; Alex Sam; Youngki Shin |
| Abstract: | A decision maker (DM) determines a set of reactions that receivers can choose before senders and receivers move in a generalized competitive signaling model with two-sided matching. The DM’s optimal design of the unique stronger monotone signaling equilibrium (unique D1 equilibrium) is equivalent to the choice problem of two threshold sender types, one for market entry and the other for pooling on the top. Our analysis sheds light on the impacts of a trade-off between matching efficiency and signaling costs, the relative heterogeneity of receiver types to sender types, and the productivity of the sender’s action on optimal equilibrium designing. |
| Keywords: | optimal equilibrium design; monotone signaling equilibrium; stronger monotone belief; Criterion D1 |
| JEL: | D82 D86 |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:mcm:deptwp:2021-08&r= |
| By: | Maria Rosa Battaggion; Vittoria Cerasi; Gulen Karakoc |
| Abstract: | This study analyzes the choice to interlock between two competing companies when their privately known marginal costs are correlated. The two rivals are organized into different business models: one delegates its production to a subcontractor, while the other is vertically integrated and carries its production in-house. By accepting the interlock, the hosting company discloses its marginal cost to the rival. The two companies decide ex-ante whether to commit to interlock. In a Perfect Bayesian Equilibrium, the vertically separated company gains more from interlocking than the rival because it saves on internal agency costs and gains market power, otherwise unbalanced toward the competitor. Interestingly, we show the following: for high cost correlation allowing a unilateral interlock benefits consumers. Hence, our results provide reasons for approving horizontal interlocking in markets where companies have asymmetric business models, and the interlocking company outsources its production. |
| Keywords: | Interlocking directorates; Agency costs; Vertical hierarchy. |
| JEL: | D43 D82 D83 L2 |
| Date: | 2021–09 |
| URL: | http://d.repec.org/n?u=RePEc:mib:wpaper:480&r= |