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Implicit collusion in non-exclusive contracting under adverse selection

  • Han, Seungjin

This paper studies how implicit collusion may take place through simple non-exclusive contracting under adverse selection when multiple buyers (e.g., entrepreneurs with risky projects) non-exclusively contract with multiple firms (e.g., banks). It shows that any price schedule can be supported as equilibrium terms of trade in the market if each firm's expected profit is no less than its reservation profit. Firms sustain collusive outcomes through the triggering trading mechanism in which they change their terms of trade contingent only on buyers’ reports on the lowest average price that the deviating firm's trading mechanism would induce.

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Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 99 (2014)
Issue (Month): C ()
Pages: 85-95

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Handle: RePEc:eee:jeborg:v:99:y:2014:i:c:p:85-95
Contact details of provider: Web page: http://www.elsevier.com/locate/jebo

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  1. Han, Seungjin, 2007. "Strongly robust equilibrium and competing-mechanism games," Journal of Economic Theory, Elsevier, vol. 137(1), pages 610-626, November.
  2. Andrea Attar & Thomas Mariotti & François Salanié, 2011. "Nonexclusive Competition in the Market for Lemons," Econometrica, Econometric Society, vol. 79(6), pages 1869-1918, November.
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  8. Han, Seungjin, 2006. "Menu theorems for bilateral contracting," Journal of Economic Theory, Elsevier, vol. 131(1), pages 157-178, November.
  9. Jaynes, Gerald D., 2011. "Equilibrium and Strategic Communication in the Adverse Selection Insurance Model," Working Papers 91, Yale University, Department of Economics.
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