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Bilateral Control with Vertical Contracts

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Author Info
Patrick Rey (University of Toulouse - IDEI - GREMAQ)
Thibaud Vergé (University of Southampton)

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Abstract

A supplier is known to be subject to opportunism when contracting secretly with downstream competitors, particularly when downstream firms have "passive beliefs." We stress that in many situations, an equilibrium with passive beliefs may not exist and passive beliefs appear less plausible than "wary beliefs", introduced by McAfee and Schwartz, that account for multilateral deviations. We show that in a broad range of situations, equilibria with wary beliefs exist and reflect opportunism. Last, we confirm the insight, derived by O'Brien and Shaffer using a more ad-hoc equilibrium concept, that RPM eliminates the scope for opportunism.

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Paper provided by EconWPA in its series Industrial Organization with number 0309005.

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Date of creation: 23 Sep 2003
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Handle: RePEc:wpa:wuwpio:0309005

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Related research
Keywords: Opportunism Secret Contracts Beliefs Resale Price Maintenance

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L - Industrial Organization

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.:

  1. Daniel P. O'Brien & Greg Shaffer, 1992. "Vertical Control with Bilateral Contracts," RAND Journal of Economics, The RAND Corporation, vol. 23(3), pages 299-308, Autumn. [Downloadable!] (restricted)
  2. Henrick Horn & Asher Wolinsky, 1988. "Bilateral Monopolies and Incentives for Merger," RAND Journal of Economics, The RAND Corporation, vol. 19(3), pages 408-419, Autumn. [Downloadable!] (restricted)
    Other versions:
  3. Hart, O. & Tirole, J., 1990. "Vertical Integration And Market Foreclosure," Working papers 548, Massachusetts Institute of Technology (MIT), Department of Economics.
    Other versions:
  4. Martin, Stephen & Normann, Hans-Theo & Snyder, Christopher M, 2001. "Vertical Foreclosure in Experimental Markets," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 466-96, Autumn.
  5. Ilya Segal & Michael D. Whinston, 2003. "Robust Predictions for Bilateral Contracting with Externalities," Econometrica, Econometric Society, vol. 71(3), pages 757-791, 05. [Downloadable!] (restricted)
  6. Jacques Cremer & Michael H. Riordan, 1987. "On Governing Multilateral Transactions with Bilateral Contracts," RAND Journal of Economics, The RAND Corporation, vol. 18(3), pages 436-451, Autumn. [Downloadable!] (restricted)
  7. DeGraba, Patrick & Postlewaite, Andrew, 1992. "Exclusivity Clauses and Best Price Policies in Input Markets," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 1(3), pages 423-54, Fall.
  8. Patrick de Graba, 1996. "Most-Favored-Customer Clauses and Multilateral Contracting: When Nondiscrimination Implies Uniformity," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 5(4), pages 565-579, December. [Downloadable!] (restricted)
  9. REY, Patrick & TIROLE, Jean, 2003. "A Primer on Foreclosure," IDEI Working Papers 203, Institut d'Économie Industrielle (IDEI), Toulouse, revised Nov 2005. [Downloadable!]
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  10. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  1. MIKLOS-THAL, Jeanine & REY, Patrick & VERGÉ, Thibaud, 2008. "Buyer Power and Intraband Coordination," IDEI Working Papers 500, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
  2. Catherine de Fontenay & Joshua Gans, 2004. "Sequential Bilateral Bargaining and the Shapley value," Econometric Society 2004 Australasian Meetings 84, Econometric Society. [Downloadable!]
  3. Catherine C. de Fontenay & Joshua S. Gans, 2004. "Vertical Integration in the Presence of Upstream Competition," Department of Economics - Working Papers Series 904, The University of Melbourne. [Downloadable!]
    Other versions:
  4. Volker Nocke & Lucy White, 2003. "Do Vertical Mergers Facilitate Upstream Collusion?," PIER Working Paper Archive 03-033, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania. [Downloadable!]
    Other versions:
  5. Michael H. Riordan, 2005. "Competitive effects of vertical integration," Discussion Papers 0506-11, Columbia University, Department of Economics. [Downloadable!]
  6. Michiel Bijlsma & Viktoria Kocsis & Victoria Shestalova & Gijsbert Zwart, 2008. "Vertical foreclosure, a policy framework," CPB Documents 157, CPB Netherlands Bureau for Economic Policy Analysis. [Downloadable!]
  7. Volker Nocke & Lucy White, 2003. "Do Vertical Mergers Facilitate Upstream Collusion? Second Version," PIER Working Paper Archive 05-013, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 08 Mar 2005. [Downloadable!]
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