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on Contract Theory and Applications |
| By: | Petrakis, Emmanuel; Skartados, Panagiotis |
| Abstract: | We consider a vertically related market where an upstream monopolist supplies two downstream Cournot competitors. We allow the vertical contract terms to be either interim observable or secret. We address a dichotomy in the literature by endogenizing the disclosure regime of contract terms. The latter could be set via a Non-Disclosure Agreement. Firms bargain over both the disclosure regime and the contract terms. Our results indicate that when firms trade over two-part tariffs, universal interim observability is the unique equilibrium no matter the bargaining power distribution or the product differentiation. Yet, when firms trade over linear tariffs there may be a multiplicity of equilibria. We also show that under competing vertical chains we get universal interim observability as a unique equilibrium no matter the upstream structure. Our results qualitatively hold under Bertrand competition too. Our welfare analysis indicates that universal interim observability and two-part tariffs yield the highest consumer surplus and total welfare. |
| Keywords: | Bilateral Contracting; Vertical Relations; Two-Part Tariffs; Bargaining; Nondisclosure Agreements; Secret Contracts |
| JEL: | D43 L13 L14 |
| Date: | 2022–02–16 |
| URL: | http://d.repec.org/n?u=RePEc:cte:werepe:34144&r= |
| By: | Mark Whitmeyer; Kun Zhang |
| Abstract: | A principal hires an agent to acquire a distribution over unverifiable posteriors before reporting to the principal, who can contract on the realized state. An agent's optimal learning and truthful disclosure completely specify the marginal incentives the principal must provide, which radically simplifies the principal's problem. When the agent i. is risk neutral, and iia. has a sufficiently high outside option, or iib. can face sufficiently large penalties, the principal can attain the first-best outcome. We also explore in detail the general problem of cheaply implementing distributions over posteriors with limited liability constraints and a risk-averse agent. |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2202.05249&r= |
| By: | Sen, Neelanjan; Minocha, Priyansh; Dutta, Arghya |
| Abstract: | This paper considers the possibility of technology licensing and tacit collusion between firms that produce homogeneous goods under asymmetric cost structures and compete in quantities. We discuss the possibility of collusion under Grim-Trigger strategies when technology may be licensed via fixed fee or royalty or two-part tariff. Irrespective of the type of licensing contract, the possibility that a stable cartel is formed is the same. In the no-licensing stage, the cartel formation is more likely if the cost difference between the firms is higher. In contrast to Lin (1996), all forms of licensing facilitate (obstruct) collusion, if the initial cost difference between the firms is less (more). Technology will always be licensed in the first stage and the optimal form of licensing is either fixed-fee or royalty or two-part tariff. The cartel will be formed if the firms are relatively patient and welfare either increases or decreases in the post-licensing stage. |
| Keywords: | Technology licensing; Oligopoly; Cartel; Grim-Trigger Strategy; Cournot Competition |
| JEL: | D24 L13 L24 |
| Date: | 2022–02–23 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:111639&r= |
| By: | Lorenzo Carbonari (Università di Roma “Tor Vergata”, Italy); Fabrizio Mattesini (Università di Roma “Tor Vergata”, Italy; EIEF); Robert J. Waldmann (Università di Roma “Tor Vergata”, Italy) |
| Abstract: | We study an economy characterized by competitive search and asymmetric information. Money is essential. Buyers decide their cash holdings after observing the contracts posted by firms and experience match-specific preference shocks which remain unknown to sellers. Firms are allowed to post general contracts. In the baseline model with indivisible goods, we show that, when the number of potential buyers is fixed, inflation decreases markups. This, in turn, increases aggregate output and ex ante welfare. When goods are divisible the negative effect of inflation on markups holds for unconstrained agents but is ambiguous for constrained agents. Still, optimal monetary policy implies a positive nominal rate. When there is buyers' free entry, asymmetric information causes a congestion effect that can be corrected by monetary policy. |
| Date: | 2022–02 |
| URL: | http://d.repec.org/n?u=RePEc:rim:rimwps:22-01&r= |
| By: | Henry Thille (Department of Economics and Finance, University of Guelph, Guelph ON Canada); Sebastien Mitraille (Toulouse Business School) |
| Abstract: | We examine the e?ects of ?rm heterogeneity when ?rms can compete in advance for future demand by either entering forward contracts or by selling to agents that store the good to meet future demand. Firms’ sales in the second period are reduced by aggregate advance sales, so high-cost ?rms may produce zero output in equilibrium if aggregate advance sales induce a price below their marginal cost. The endogenous number of active ?rms leads to the possibility of a deterrence equilibrium in which lower-cost ?rms act to deter the activity of higher-cost ?rms. In this case, the presence of inactive higher-cost ?rms in the market results in a lower price than would otherwise obtain. In addition, the advance sales equilibrium with heterogeneous ?rms has higher market shares for relatively e?cient ?rms compared to that in both the heterogeneous ?rm Cournot equilibrium and the homogeneous ?rm advance sales equilibrium. Consequently, the equilibrium outcome results in industry output produced at a lower average cost, which represents an additional welfare gain associated with the pro-competitive e?ects of strategic advance sales even though the reallocation of market shares leads to higher measured concentration. |
| Keywords: | Advance sales, oligopoly, quantity competition |
| JEL: | C72 D43 L13 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:gue:guelph:2022-01&r= |
| By: | Buccella, Domenico; Meccheri, Nicola |
| Abstract: | This paper investigates the issue of strategic delegation by considering the role of management centrality in contracting with different stakeholders. Specifically, a sequential negotiation unionized duopoly model is analysed, in which the management relative bargaining power visà-vis shareholders and vis-à-vis unions can differ. In such a framework, differences in the relative bargaining power among involved stakeholders play a key role in determining the endogenous choice by firms' owners to delegate strategic decisions to the management, or, in other words, the choice of being an entrepreneurial or a managerial firm. Moreover, the distribution of stakeholders' relative bargaining power affects firms' profitability and overall welfare, also leading to novel results with regard to the received literature. In particular, to minimize potential conflict of interests between firms' owners and the overall society, regulation directed to soften the managers' bargaining strength vis-à-vis shareholders must be designed and implemented. |
| Keywords: | management centrality,strategic delegation,unions,bargaining power,social welfare,stakeholder conflict |
| JEL: | D21 L13 L14 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:glodps:1025&r= |
| By: | Chakraborty, Tanika (Indian Institute of Management); Mukherjee, Anirban (University of Calcutta); Saha, Sarani (Indian Institute of Technology Kanpur); Shukla, Divya (Indian Institute of Technology Kanpur) |
| Abstract: | We study the role of formal institutions of contract enforcement in facilitating investments in small and medium firms(MSME). In a framework where established entrepreneurs can enforce contracts informally using their network ties and hierarchical advantage, we argue that an efficient formal judiciary helps entrepreneurs without any ties to informal business networks, disproportionately more. We test our theoretical prediction using a novel administrative panel-data from Indian courts and the nationally representative MSME survey data. Empirically, we treat entrepreneurs from disadvantaged castes (SC-ST) as those without traditional business-network ties. We find that improvement in court quality has a disproportionately larger impact on the investment decisions of SC-ST entrepreneurs. On average, if the time taken for a court to clear all existing cases reduces by 1 year, the initial gap in the probability of investing, between SC-ST and other entrepreneurs, gets reduced by 0.6-0.7 percentage points. |
| Keywords: | judiciary, Duration Index, MSME, entrepreneurship |
| JEL: | K12 L26 O17 |
| Date: | 2022–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp15037&r= |