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Endogenous Market Structures and Contract Theory

  • Federico Etro

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I study the role of unilateral strategic contracts for firms active in markets with price competition and endogenous entry. Traditional results change substantially when the market structure is endogenous rather than exogenous. They concern 1) contracts of managerial delegation to non-profit maximizers, 2) incentive contracts in the presence of moral hazard on cost reducing activities, 3) screening contracts in case of asymmetric information on the productivity of the managers, 4) vertical contracts of franchising in case of hold-up problems and 5) tying contracts by monopolists competing also in secondary markets. Firms use always these contracts to strengthen price competition and manage to obtain positive pro?ts in spite of free entry.

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File URL: http://dipeco.economia.unimib.it/repec/pdf/mibwpaper181.pdf
File Function: First version, 2010
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Paper provided by University of Milano-Bicocca, Department of Economics in its series Working Papers with number 181.

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Length: 27 pages
Date of creation: Mar 2010
Date of revision: Mar 2010
Handle: RePEc:mib:wpaper:181
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  4. Benjamin E. Hermalin, 1994. "Heterogeneity in Organizational Form: Why Otherwise Identical Firms Choose Different Incentives for Their Managers," RAND Journal of Economics, The RAND Corporation, vol. 25(4), pages 518-537, Winter.
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  11. F. Etro, 2007. "Endogenous Market Structures and Macroeconomic Theory," Review of Business and Economics, Katholieke Universiteit Leuven, Faculteit Economie en Bedrijfswetenschappen, vol. 0(4), pages 517-540.
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  29. Vickers, John, 1985. "Delegation and the Theory of the Firm," Economic Journal, Royal Economic Society, vol. 95(380a), pages 138-47, Supplemen.
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