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on Contract Theory and Applications |
| By: | David Martimort (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, EHESS - École des hautes études en sciences sociales); Jérôme Pouyet (THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - CY - CY Cergy Paris Université, ESSEC Business School - Essec Business School); Thomas Trégouët (THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - CY - CY Cergy Paris Université) |
| Abstract: | An incumbent seller contracts with a buyer and faces the threat of entry. The contract stipulates a price and a penalty for breach if the buyer later switches to the entrant. Sellers are heterogenous in terms of the gross surplus they provide to the buyer. The buyer is privately informed on her valuation for the incumbent's service. Asymmetric information makes the incumbent favor entry as it helps screening buyers. When the entrant has some bargaining power vis-à-vis the buyer and keeps a share of the gains from entry, the incumbent instead wants to reduce entry. The compounding effect of these two forces may lead to either excessive entry or foreclosure, and possibly to a fixed rebate for exclusivity given to all buyers. |
| Keywords: | excessive entry,foreclosure,exclusionary behavior,incomplete information |
| Date: | 2021–12 |
| URL: | http://d.repec.org/n?u=RePEc:hal:pseptp:hal-03328387&r= |
| By: | Emanuele Colonnelli; Spyridon Lagaras; Jacopo Ponticelli; Mounu Prem; Margarita Tsoutsoura |
| Abstract: | We study how the disclosure of corrupt practices affects the growth of firms involved in illegal interactions with the government using randomized audits of public procurement in Brazil. On average, firms exposed by the anti-corruption program grow larger after the audits, despite experiencing a decrease in procurement contracts. We manually collect new data on the details of thousands of corruption cases, through which we uncover a large heterogeneity in our firm-level effects depending on the degree of involvement in corruption cases. Using investment-, loan-, and worker- level data, we show that the average exposed firms adapt to the loss of government contracts by changing their investment strategy. They increase capital investment and borrow more to finance such investment, while there is no change in their internal organization. We provide qualitative support to our results by conducting new face-to-face surveys with business owners of government-dependent firms. |
| JEL: | D73 G30 H57 O10 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29627&r= |
| By: | Biais, Bruno; Heider, Florian; Hoerova, Marie |
| Abstract: | In order to share risk, protection buyers trade derivatives with protection sellers. Protection sellers’ actions affect the riskiness of their assets, which can create counter-party risk. Because these actions are unobservable, moral hazard limits risk sharing. To mitigate this problem, privately optimal derivative contracts involve variation mar-gins. When margins are called, protection sellers must liquidate some assets, depressing asset prices. This tightens the incentive constraints of other protection sellers and re-duces their ability to provide insurance. Despite this fire-sale externality, equilibrium is information-constrained efficient. Investors, who benefit from buying assets at fire-sale prices, optimally supply insurance against the risk of fire sales. |
| Keywords: | variation margins; fire sales; pecuniary externality; moral hazard, con-strained efficiency; regulation |
| JEL: | G18 D62 G13 D82 |
| Date: | 2022–01–27 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:126554&r= |
| By: | Kei Kawai; Jun Nakabayashi; Juan M. Ortner; Sylvain Chassang |
| Abstract: | Cartels participating in procurement auctions frequently use bid rotation or prioritize incumbents to allocate contracts. However, establishing a link between observed allocation patterns and firm conduct has been difficult: there are cost-based competitive explanations for such patterns. We show that by focusing on auctions in which the winning and losing bids are very close, it is possible to distinguish allocation patterns reflecting cost differences across firms from patterns reflecting non-competitive environments. We apply our tests to two datasets: the sample of Ohio milk auctions studied in Porter and Zona (1999), and a sample of municipal procurement auctions from Japan. |
| JEL: | L41 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:29625&r= |