How to elicit sequential retailer information optimally
AbstractIn vertical relationships, manufacturers commonly rely on retailers to sell their goods. In this note, we analyze a manufacturer-retailer relationship in which a manufacturer delegates the sale of his product to a retailer who gets sequentially private information about the retail value of the product. At the time of contracting the retailer knows only the product's expected retail value, but subsequently learns the actual valuation. As a result, the retailer is tempted to understate the product's (expected) value in order to receive more favorable pricing conditions from the manufacturer. In this note, we characterize the optimal sequential screening contract using ex-post and ex-ante incentive constraints. Furthermore, we discuss the mechanism's properties. Moreover, we show how the optimal mechanism can be induced with two-part tariffs and with contracts based on returns. This allows us to discuss briefly which combination of the different instruments - returns, price floors, ex-ante and ex-post pricing - optimally elicits the retailer's private information.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economics and Business.
Volume (Year): 62 (2010)
Issue (Month): 2 (March)
Contact details of provider:
Web page: http://www.elsevier.com/locate/jeconbus
Retailer Manufacturer Sequential private information;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Martimort, David & Piccolo, Salvatore, 2007.
"Resale price maintenance under asymmetric information,"
International Journal of Industrial Organization,
Elsevier, vol. 25(2), pages 315-339, April.
- Salvatore Piccolo & David Martimort, 2003. "Resale Price Maintenance under Asymmetric Information," CSEF Working Papers 107, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 01 Apr 2007.
- Martimort, David & Piccolo, Salvatore, 2007. "Resale Price Maintenance under Asymmetric Information," Open Access publications from University of Toulouse 1 Capitole http://neeo.univ-tlse1.fr, University of Toulouse 1 Capitole.
- Oana Secrieru, 2006. "The Economic Theory Of Vertical Restraints," Journal of Economic Surveys, Wiley Blackwell, vol. 20(5), pages 797-822, December.
- Maggi G. & Rodriguez-Clare A., 1995. "On Countervailing Incentives," Journal of Economic Theory, Elsevier, vol. 66(1), pages 238-263, June.
- Gal-Or, Esther, 1991. "Vertical Restraints with Incomplete Information," Journal of Industrial Economics, Wiley Blackwell, vol. 39(5), pages 503-16, September.
- Myerson, Roger B, 1979.
"Incentive Compatibility and the Bargaining Problem,"
Econometric Society, vol. 47(1), pages 61-73, January.
- Roger B. Myerson, 1977. "Incentive Compatability and the Bargaining Problem," Discussion Papers 284, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Lewis, Tracy R. & Sappington, David E. M., 1989. "Countervailing incentives in agency problems," Journal of Economic Theory, Elsevier, vol. 49(2), pages 294-313, December.
- Melumad, Nahum D. & Reichelstein, Stefan, 1989. "Value of communication in agencies," Journal of Economic Theory, Elsevier, vol. 47(2), pages 334-368, April.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wendy Shamier).
If references are entirely missing, you can add them using this form.