Bilateral Control with Vertical Contracts
When a manufacturer contracts secretly with competing retailers he is subject to opportunism, and linear or non-linear tariffs may not allow the manufacturer to maintain monopoly prices. To analyse the effects of RPM, O'Brien-Shaffer (1992) use a concept of contract equilibrium which concentrates on pairwise deviations thereby questioning the robustness of the analysis. This paper emphasises the distinction between the contract equilibrium and standard non-cooperative concepts. We advocate for some caution in the use of the former concept, as if overlooks an inexistence problem. We then confirm the intuition that RPM can help solve the manufacturer's commitment problem. This confirms that O'Brien-Shaffer's insight is robust and validates the courts' reluctance against RPM.
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- 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.
- 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.
- Ilya Segal & Michael D. Whinston, 2003. "Robust Predictions for Bilateral Contracting with Externalities," Econometrica, Econometric Society, vol. 71(3), pages 757-791, 05.
- Henrick Horn & Asher Wolinsky, 1988.
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RAND Journal of Economics,
The RAND Corporation, vol. 19(3), pages 408-419, Autumn.
- Hart, O. & Tirole, J., 1990. "Vertical Integration And Market Foreclosure," Working papers 548, Massachusetts Institute of Technology (MIT), Department of Economics.
- McAfee, R Preston & Schwartz, Marius, 1994. "Opportunism in Multilateral Vertical Contracting: Nondiscrimination, Exclusivity, and Uniformity," American Economic Review, American Economic Association, vol. 84(1), pages 210-30, March.
- 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.
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