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Contractual Externalities and Common Agency Equilibria

  • David Martimort
  • Lars Stole

This paper characterizes the equilibrium sets of an intrinsic common agency game with direct exter-nalities between principals both under complete and asymmetric information. Direct externalities arise when the contracting variable of one principal affects directly the other principal’s payoff. Out-of-equilibrium messages are used by principals to precommit themselves to distort their strategic behavior. We characterize pure-strategy symmetric equilibria arising in such games under complete information and show their multiplicity. We then introduce asymmetric information to refine the set of feasible conjectures. We show that a unique equilibrium may be selected by conveniently perturbing the information structure. Both under complete and asymmetric information, we show that the equilibrium outputs of the intrinsic common agency game are also equilibrium outputs of the delegated common agency game, although the two games differ in terms of the distribution of surplus they involve.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 581.

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Date of creation: 2001
Date of revision:
Handle: RePEc:ces:ceswps:_581
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  5. David Martimort, 1996. "Exclusive Dealing, Common Agency, and Multiprincipals Incentive Theory," RAND Journal of Economics, The RAND Corporation, vol. 27(1), pages 1-19, Spring.
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  11. Peters, Michael, 2001. "Common Agency and the Revelation Principle," Econometrica, Econometric Society, vol. 69(5), pages 1349-72, September.
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  13. McAfee, R Preston, 1993. "Mechanism Design by Competing Sellers," Econometrica, Econometric Society, vol. 61(6), pages 1281-1312, November.
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  15. Michael L. Katz, 1991. "Game-Playing Agents: Unobservable Contracts as Precommitments," RAND Journal of Economics, The RAND Corporation, vol. 22(3), pages 307-328, Autumn.
  16. Epstein, Larry G. & Peters, Michael, 1999. "A Revelation Principle for Competing Mechanisms," Journal of Economic Theory, Elsevier, vol. 88(1), pages 119-160, September.
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  19. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, June.
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  24. David Martimort & Lars Stole, 2001. "The Revelation and Delegation Principles in Common Agency Games," CESifo Working Paper Series 575, CESifo Group Munich.
  25. Claudio Mezzetti, 1997. "Common Agency with Horizontally Differentiated Principals," RAND Journal of Economics, The RAND Corporation, vol. 28(2), pages 323-345, Summer.
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