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On Governing Multilateral Transactions with Bilateral Contracts

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  • Jacques Cremer
  • Michael H. Riordan

Abstract

Bilateral contracts, while neither negotiated nor enforced in an integrated way, are nevertheless often interrelated both economically and strategically owing to production or consumption complementarities and to asymmetric information. A set of bilateral contracts forms a mechanism with special properties. This mechanism forms a contract equilibrium if there is no joint incentive for a supplier and any individual customer unilaterally to alter the terms of their contract. If agents' preferences are risk neutral in money income, and if their private information is independent, then there exists a contract equilibrium that implements efficient transactions. If, in addition, preferences are strictly concave and differentiable in goods and services, and technologically feasible sets are suitably convex, then this equilibrium is essentially unique.

Suggested Citation

  • 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.
  • Handle: RePEc:rje:randje:v:18:y:1987:i:autumn:p:436-451
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    References listed on IDEAS

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    1. Glenn C. Loury, 1979. "Market Structure and Innovation," The Quarterly Journal of Economics, Oxford University Press, vol. 93(3), pages 395-410.
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    Cited by:

    1. Alipranti, Maria & Milliou, Chrysovalantou & Petrakis, Emmanuel, 2014. "Price vs. quantity competition in a vertically related market," Economics Letters, Elsevier, vol. 124(1), pages 122-126.
    2. Vianney Dequiedt & David Martimort, 2015. "Vertical Contracting with Informational Opportunism," American Economic Review, American Economic Association, pages 2141-2182.
    3. d'Aspremont, Claude & Cremer, Jacques & Gerard-Varet, Louis-Andre, 2004. "Balanced Bayesian mechanisms," Journal of Economic Theory, Elsevier, vol. 115(2), pages 385-396, April.
    4. Versaevel, Bruno, 2002. "Co-ordination costs and vertical integration in production franchise networks: a common agency model," Research in Economics, Elsevier, vol. 56(2), pages 157-186, June.
    5. repec:spr:reecde:v:21:y:2017:i:4:d:10.1007_s10058-017-0207-7 is not listed on IDEAS
    6. Gregory S. Crawford & Ali Yurukoglu, 2012. "The Welfare Effects of Bundling in Multichannel Television Markets," American Economic Review, American Economic Association, pages 643-685.
    7. Jeon, Doh-Shin & Lefouili, Yassine, 2015. "Cross-Licensing and Competition," CEPR Discussion Papers 10941, C.E.P.R. Discussion Papers.
    8. Tommy Staahl Gabrielsen & Bjørn Olav Johansen, 2017. "Resale Price Maintenance with Secret Contracts and Retail Service Externalities," American Economic Journal: Microeconomics, American Economic Association, vol. 9(1), pages 63-87, February.
    9. Patrick Rey & Thibaud Vergé, 2004. "Bilateral Control with Vertical Contracts," RAND Journal of Economics, The RAND Corporation, pages 728-746.
    10. Marco Pagnozzi & Salvatore Piccolo, 2012. "Vertical Separation with Private Contracts," Economic Journal, Royal Economic Society, vol. 122(559), pages 173-207, March.
    11. Claire Chambolle & Sofia Villas-Boas, 2007. "Buyer Power through Producer's Differentiation," Working Papers hal-00243058, HAL.
    12. Chambolle, Claire & Villas-Boas, Sofia B., 2015. "Buyer power through the differentiation of suppliers," International Journal of Industrial Organization, Elsevier, vol. 43(C), pages 56-65.
    13. Jeanine Miklós-Thal & Greg Shaffer, 2016. "Naked Exclusion with Private Offers," American Economic Journal: Microeconomics, American Economic Association, vol. 8(4), pages 174-194, November.
    14. Ilya Segal & Michael D.Whinston, 2012. "Property Rights," Introductory Chapters,in: Robert Gibbons & John Roberts (ed.), : The Handbook of Organizational Economics Princeton University Press.
    15. Huseyin Yildirim & Alvaro Name Correa, 2011. "A Theory of Charitable Fund-Raising with Costly Solicitations," Levine's Working Paper Archive 786969000000000222, David K. Levine.
    16. Billette de Villemeur, Etienne & Versaevel, Bruno, 2017. "One Lab, Two Firms, Many Possibilities: on R&D outsourcing in the biopharmaceutical industry," MPRA Paper 76903, University Library of Munich, Germany.
    17. Kind, Hans Jarle & Nilssen, Tore & Sørgard, Lars, 2016. "Inter-firm price coordination in a two-sided market," International Journal of Industrial Organization, Elsevier, vol. 44(C), pages 101-112.
    18. Dilip Mookherjee, 2006. "Decentralization, Hierarchies, and Incentives: A Mechanism Design Perspective," Journal of Economic Literature, American Economic Association, vol. 44(2), pages 367-390, June.
    19. Polemis, Michael & Eleftheriou, Konstantinos, 2015. "To Regulate or to Deregulate? The Role of Downstream Competition in Upstream Monopoly Vertically Linked Markets," MPRA Paper 68726, University Library of Munich, Germany.
    20. Bonnet, Céline & Bouamra-Mechemache, Zohra & Molina, Hugo, 2016. "The Welfare Effects of Brand Portfolio Strategies in the Soft Drink Industry: A Structural Bargaining Approach with Limited Data," 149th Seminar, October 27-28, 2016, Rennes, France 245168, European Association of Agricultural Economists.
    21. Versaevel, Bruno & de Villemeur, Étienne, 2003. "Conflict and Cooperation on R&D Markets," IDEI Working Papers 191, Institut d'Économie Industrielle (IDEI), Toulouse.
    22. Bjørn Olav Johansen & Tore Nilssen, 2016. "The Economics of Retailing Formats: Competition Versus Bargaining," Journal of Industrial Economics, Wiley Blackwell, vol. 64(1), pages 109-134, March.
    23. Lømo, Teis Lunde, 2015. "Risk sharing mitigates opportunism in vertical contracting," Working Papers in Economics 10/15, University of Bergen, Department of Economics.
    24. Doh-Shin Jeon & Yassine Lefouili, 2014. "Patent Licensing Networks," Working Papers 14-16, NET Institute.
    25. Maria Carmela Ceparano & Jacqueline Morgan, 2015. "Equilibria Under Passive Beliefs for Multi-leader-follower Games with Vertical Information: Existence Results," CSEF Working Papers 417, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 09 Jan 2017.

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