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The Value of Transparency in Dynamic Contracting with Entry

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Abstract

A manufacturer designs a dynamic contract with a retailer who is privately informed about demand and faces competition by an integrated entrant in a second period. Since the entrant only observes demand after entry and demand is correlated across periods, information about past demand affects the entrant’s production. We analyze the incentives of the incumbent players to share information with the entrant and show that the retailer benefits from transparency, but the manufacturer does not. Contrary to what intuition suggests, transparency with an integrated entrant harms consumers. When the entrant is not an integrated firm, whether transparency benefits consumers depends on the degree of demand persistency.

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  • Gülen Karakoç & Marco Pagnozzi & Salvatore Piccolo, 2017. "The Value of Transparency in Dynamic Contracting with Entry," CSEF Working Papers 482, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    • Handle: RePEc:sef:csefwp:482
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    Cited by:

    1. Karakoç, Gülen & Pagnozzi, Marco & Piccolo, Salvatore, 2022. "The value of transparency in dynamic contracting with entry," International Journal of Industrial Organization, Elsevier, vol. 85(C).
    2. Maria Rosa Battaggion & Vittoria Cerasi & Gülen Karakoç, 2023. "On the optimality of information sharing between integrated and vertically separated competitors," Southern Economic Journal, John Wiley & Sons, vol. 89(4), pages 1168-1195, April.

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    More about this item

    Keywords

    Dynamic Adverse Selection; Entry; Information Sharing; Transparency; Vertical Contracting;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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