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On Governing Multilateral Transactions with Bilateral Contracts

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  • Jacques Cremer
  • Michael H. Riordan

Abstract

Bilateral contracts, while neither negotiated nor enforced in an integrated way, are nevertheless often interrelated both economically and strategically owing to production or consumption complementarities and to asymmetric information. A set of bilateral contracts forms a mechanism with special properties. This mechanism forms a contract equilibrium if there is no joint incentive for a supplier and any individual customer unilaterally to alter the terms of their contract. If agents' preferences are risk neutral in money income, and if their private information is independent, then there exists a contract equilibrium that implements efficient transactions. If, in addition, preferences are strictly concave and differentiable in goods and services, and technologically feasible sets are suitably convex, then this equilibrium is essentially unique.

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Bibliographic Info

Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 18 (1987)
Issue (Month): 3 (Autumn)
Pages: 436-451

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Handle: RePEc:rje:randje:v:18:y:1987:i:autumn:p:436-451

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Cited by:
  1. Dilip Mookherjee, 2006. "Decentralization, Hierarchies, and Incentives: A Mechanism Design Perspective," Journal of Economic Literature, American Economic Association, vol. 44(2), pages 367-390, June.
  2. Alipranti, Maria & Milliou, Chrysovalantou & Petrakis, Emmanuel, 2014. "Price vs. quantity competition in a vertically related market," DICE Discussion Papers 146, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  3. Crawford, Gregory S & Yurukoglu, Ali, 2011. "The Welfare Effects of Bundling in Multichannel Television Markets," CEPR Discussion Papers 8370, C.E.P.R. Discussion Papers.

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