Franchise Contracts with Ex Post Limited Liability
AbstractThis paper examines the contracting relationship between a manufacturer and a retailer when the retailer has ex ante private information, and is subject to limited liability. The contract takes place over two periods. In the first period, the retailer can make a report of private information, or take an action, either of which in uences the manufacturer's beliefs about the distribution of demand states for a final good in the second period. In the second period, the retailer sells the manufacturers intermediate good into a final output market according to a variable fee schedule. The interaction of the limited liability constraints with incentive compatibility in the second stage gives rise to an expected surplus to the retailer, which the manufacturer can extract with a franchise fee. The franchise fee can also be used as a screening device or a means of eliciting the efficient first stage action from the retailer.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Tasmania, School of Economics and Finance in its series Working Papers with number 10281.
Length: 40 pages
Date of creation: 05 Oct 2010
Date of revision: 05 Oct 2010
Publication status: Published by the University of Tasmania. Discussion paper 2010-10
Franchise Fee; Limited Liability; Vertical Restraints;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
- L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
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.:
- Léonard,Daniel & Long,Ngo van, 1992.
"Optimal Control Theory and Static Optimization in Economics,"
Cambridge University Press, number 9780521337465, December.
- Léonard,Daniel & Long,Ngo van, 1992. "Optimal Control Theory and Static Optimization in Economics," Cambridge Books, Cambridge University Press, number 9780521331586, December.
- Martimort, David & Piccolo, Salvatore, 2007.
"Resale price maintenance under asymmetric information,"
International Journal of Industrial Organization,
Elsevier, vol. 25(2), pages 315-339, April.
- Salvatore Piccolo & David Martimort, 2003. "Resale Price Maintenance under Asymmetric Information," CSEF Working Papers 107, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 01 Apr 2007.
- Oliver D. Hart & Jean Tirole, 1987.
"Contract Renegotiation and Coasian Dynamics,"
442, Massachusetts Institute of Technology (MIT), Department of Economics.
- Joseph J. Spengler, 1950. "Vertical Integration and Antitrust Policy," Journal of Political Economy, University of Chicago Press, vol. 58, pages 347.
- Sappington, David, 1983. "Limited liability contracts between principal and agent," Journal of Economic Theory, Elsevier, vol. 29(1), pages 1-21, February.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Derek Rowlands).
If references are entirely missing, you can add them using this form.