Bilateral Control with Vertical Contracts
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 (1994). 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 (1992) using a more ad hoc equilibrium concept, that resale price maintenance (RPM) eliminates the scope for opportunism.
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Volume (Year): 35 (2004)
Issue (Month): 4 (Winter)
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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.:
- DeGraba, Patrick & Postlewaite, Andrew, 1992. "Exclusivity Clauses and Best Price Policies in Input Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(3), pages 423-54, Fall.
- Hart, O. & Tirole, J., 1990. "Vertical Integration And Market Foreclosure," Working papers 548, Massachusetts Institute of Technology (MIT), Department of Economics.
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