AbstractWhen does it pay a coalition of buyers and a coalition of sellers to by-pass a noncooperative market outcome by negotiating an alternative contract? Should these collective contracts be allowed? This paper investigates one source of the incentive for collective contracting: the failure of monopolistically competitive markets to achieve the optimal trade-off between lower costs and greater variety or availability of products. A collective contract benefits buyers inside the coalition but imposes a negative externality on buyers outside the coalition, who face higher prices and lower availability when the contract is allowed. We analyze the conditions under which the collective contracts increase total welfare. We suggest that the model represents one component of the incentives for "managed competition" in health care markets.
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Bibliographic InfoArticle provided by Elsevier in its journal International Journal of Industrial Organization.
Volume (Year): 15 (1997)
Issue (Month): 2 (April)
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Web page: http://www.elsevier.com/locate/inca/505551
Other versions of this item:
- L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
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