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Intra-firm bargaining and learning in a market equilibrium

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  • Mikhail Drugov

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    Abstract

    This paper introduces an agency relationship into a dynamic game with informational externalities. Two principals bargain with their respective agents about the production cost which is the private information of the agents and is correlated between them. We find that the agency relationship creates an incentive for simultaneous production, even if this involves an inefficient delay. As the commitment power of the principals decreases, this incentive becomes stronger. When principals compete, the effect of competition is decomposed into two parts. Inter-period competition (from past and future actions) pushes principals towards simultaneous actions, while intra-period competition (from concurrent actions) does the opposite.

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    File URL: http://e-archivo.uc3m.es/bitstream/10016/10439/1/we1102.pdf
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    Bibliographic Info

    Paper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we1102.

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    Date of creation: Mar 2011
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    Handle: RePEc:cte:werepe:we1102

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    Related research

    Keywords: Bargaining; Adverse selection; Learning; Information; Externalities; Delay;

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    1. Gary-Bobo, Robert J. & Spiegel, Yossi, 2003. "Optimal State-Contingent Regulation under Limited Liability," CEPR Discussion Papers 3920, C.E.P.R. Discussion Papers.
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