Competition and Incentives with Non-Exclusive Contracts
We consider a common agency context where socially desired exclusive dealing clauses cannot be enforced. Customers sequentially negotiate nonexclusive credit or insurance contracts from multiple risk-neutral firms in a market with free entry. Each contract is subject to moral hazard arising from a common noncontractible effort decision. Outcomes of a class of Markov equilibria are characterized by a corresponding notion of constrained efficiency. These may involve more rationing than in a context of exclusive contracts. Increases in public provision or competition can result in increased prices on the private market, owing to an induced reduction in customer effort.
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|Date of creation:||Nov 1996|
|Date of revision:|
|Contact details of provider:|| Postal: Boston University, Industry Studies Program; Department of Economics, 270 Bay Road, Boston, Massachusetts 02215.|
Web page: http://www.bu.edu/econ/isp/
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