A single principal interacts with several agents, offering them contracts. The crucial assumption of this paper is that the outside-option payoffs of the agents depend positively on how many free agents there are (these are agents who are not under contract). We study how such a principal, unwelcome though he may be, approaches the problem of contract provision to agents when coordination failure among the latter group is explicitly ruled out. Two variants are studied. When the principal cannot re-approach agents, there is a unique equilibrium, in which contract provision is split up into two phases. In phase 1, simultaneous offers at good (though varying)terms are made to a number of agents. In phase 2, offers must be made sequentially, and their values are discontinuously lower: they are close to the very lowest of all the outside options. When the principal can repeatedly approach the same agent, there is a multiplicity of equilibria. In some of these, the agents have the power to force delay. They can hold off the principals overtures temporarily, but they must succumb in finite time. Furthermore, even though the maximal delay does go to infinity as the discount factor approaches one, the (discount-normalized) payoff of the agents must stay below and bounded away from the fully free reservation payoff. It is in this sense that things [eventually] fall apart as far as the agents are concerned.
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Paper provided by Georgetown University, Department of Economics in its series Working Papers with number
gueconwpa~03-03-30.
Length: Date of creation: Date of revision: Handle: RePEc:geo:guwopa:gueconwpa~03-03-30
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References listed on IDEAS 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.:
Rasmusen, Eric B & Ramseyer, J Mark & Wiley, John S, Jr, 1991.
"Naked Exclusion,"
American Economic Review,
American Economic Association, vol. 81(5), pages 1137-45, December.
[Downloadable!] (restricted)
B. Douglas Bernheim & Michael D. Whinston, 1998.
"Exclusive Dealing,"
Journal of Political Economy,
University of Chicago Press, vol. 106(1), pages 64-103, February.
[Downloadable!] (restricted)
Other versions:
B. Douglas Bernheim & Michael D. Whinston, 1996.
"Exclusive Dealing,"
NBER Working Papers
5666, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
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