Contractual Externalities and Common Agency Equilibria
AbstractThis paper characterizes the equilibrium sets of common agency games with direct externalities between principals when they compete with nonlinear prices. Direct externalities arise when the contracting variable of one principal directly affects the other principal's payoff. First, we characterize the set of pure-strategy, symmetric equilibria under complete information of an intrinsic common agency game. This set of equilibria is large because of the presence of price-output offers by the principals that are unchosen by the agent in equilibrium. Equilibria exist in which principals offer out-of-equilibrium price-output choices to the agent and induce aggressive, low-price behavior corresponding to marginal-cost pricing in the extreme case. We then show that this equilibrium set of outputs is robust to the possibility that agent refuses any of the offered contracts; the case of delegated agency. Second, we introduce asymmetric information in order to rationalize existing nonlinear pricing contracts. The introduction of asymmetric information has the effect of restricting the set of equilibrium outputs of the intrinsic common agency game.
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Bibliographic InfoPaper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 110.
Date of creation: 1999
Date of revision: 2003
Publication status: Published in Advances in Theoretical Economics, vol.�3, n°1, 2003.
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Other versions of this item:
- Martimort David & Stole Lars, 2003. "Contractual Externalities and Common Agency Equilibria," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 3(1), pages 1-40, July.
- David Martimort & Lars Stole, 2001. "Contractual Externalities and Common Agency Equilibria," CESifo Working Paper Series 581, CESifo Group Munich.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
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