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Unobserved Wholesale Contracts

Author

Listed:
  • Maarten C.W. Janssen

    (University of Vienna)

  • Santanu Roy

    (Southern Methodist University)

Abstract

A manufacturer with private information about product quality may earn higher expected profit when their wholesale pricing contract with a retailer is unobserved by consumers. Secret wholesale contracts may prevent distortionary signaling by the manufacturer and double marginalization by the retailer. Instead, reasonable pooling outcomes exist where wholesale pricing is independent of quality, leaving the retailer and consumers in the dark about true quality. These outcomes may increase expected consumer and total surplus. The strategic interaction is different from standard signaling games. The pooling outcomes satisfy a new equilibrium refinement that we develop in the spirit of the Intuitive Criterion.

Suggested Citation

  • Maarten C.W. Janssen & Santanu Roy, 2023. "Unobserved Wholesale Contracts," Departmental Working Papers 2310, Southern Methodist University, Department of Economics.
    • Handle: RePEc:smu:ecowpa:2310
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Asymmetric Information; Product Quality; Vertical Contracts; Wholesale Pricing; Signaling; Pooling.;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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