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on Contract Theory and Applications |
| By: | Ying Chen; Jan Zapal |
| Abstract: | We investigate the effects of buyer heterogeneity in a market in which an incumbent firm prevents entry when it signs enough exclusionary contracts with buyers. With heterogeneous buyers several well-known results in exclusionary contracting with homogenous buyers are overturned and novel ones emerge. First, inefficient equilibria exist in which exclusionary contracts are signed but entry still occurs, and the loss of consumer surplus falls on small buyers. Second, sequential contracting may be more pro-competitive than simultaneous contracting in the sense that entry occurs under sequential but not simultaneous contracting. When this happens, sequential Pareto dominates simultaneous contracting. |
| Keywords: | contracting with externalities; exclusionary contracts; buyer heterogeneity; pro-competitive; anti-competitive; sequential vs simultaneous contracting; |
| JEL: | C78 D21 L12 L42 |
| Date: | 2022–11 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp741&r=cta |
| By: | Monte, Daniel; Linhares, Luis Henrique |
| Abstract: | Obfuscation is ubiquitous and often intentional. We consider an uninformed Principal who chooses how costly it will be for the Agent to obtain and process new information. Thus, obfuscation and transparency are endogenous to the problem at hand. Using a rational inattention framework, we study the Principal's optimal induced cost of processing information and examine necessary and sufficient conditions for obfuscation. We characterize the Principal's optimal obfuscation for the class of state independent preferences. We apply our model to examples such as stealth startups, companies with unnecessarily complicated contracts, and firms whose products have varying features that disguise add-ons. |
| Keywords: | stealth startups, information design, rational inattention |
| JEL: | D0 D8 |
| Date: | 2023–01–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:115926&r=cta |
| By: | Leonardo Madio; Aldo Pignataro |
| Abstract: | We study an infinitely repeated oligopoly game in which firms compete on quantity and one of them is capacity constrained. We show that collusion sustainability is non-monotonic in the size of the capacity constrained firm, which has little incentive to deviate from a cartel. We also present conditions for the emergence of a partial cartel, with the capacity constrained firm being excluded by the large firms or self-excluded. In the latter case, we show under which circumstances the small firm induces a partial conspiracy that is Pareto-dominant. Implications for cartel identification and enforcement are finally discussed. |
| Keywords: | antitrust, capacity constraints, collusion, partial cartel |
| JEL: | D21 L13 L41 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10170&r=cta |
| By: | Christoph Kuzmics (University of Graz, Austria); Brian W. Rogers (Washington University in St. Louis, U.S.A.); Xiannong Zhang (Washington University in St. Louis, U.S.A.) |
| Abstract: | We design and implement lab experiments to evaluate the normative appeal of behavior arising from models of ambiguity-averse preferences. We report two main empirical findings. First, we demonstrate that behavior reflects an incomplete understanding of the problem, providing evidence that subjects do not act on the basis of preferences alone. Second, additional clarification of the decision making environment pushes subjects’ choices in the direction of ambiguity aversion models, regardless of whether or not the choices are also consistent with subjective expected utility, supporting the position that subjects find such behavior normatively appealing. |
| Keywords: | Knightian uncertainty; subjective expected utility; ambiguity aversion; lab experiment. |
| JEL: | C91 D81 |
| Date: | 2023–01 |
| URL: | http://d.repec.org/n?u=RePEc:grz:wpaper:2023-01&r=cta |
| By: | Vladimir Novak; Andrei Matveenko; Silvio Ravaioli |
| Abstract: | We show that rational but inattentive agents can become polarized ex-ante. We present how optimal information acquisition, and subsequent belief formation, depend crucially on the agent-specific status quo valuation. Beliefs can systematically - in expectations over all possible signal realizations conditional on the state of the world - update away from the realized truth and even agents with the same initial beliefs might become polarized. We design a laboratory experiment to test the model’s predictions. The results confirm our predictions about the mechanism (rational information acquisition), its effect on beliefs (systematic polarization) and provide general insights into demand for information. |
| Keywords: | Polarization, Beliefs Updating, Rational Inattention, Status Quo, Experiment |
| JEL: | C92 D72 D83 D84 D91 |
| Date: | 2023–01 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2023_382&r=cta |