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Information Sharing between Vertical Hierarchies

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Abstract

When do principals independently choose to share the information obtained from their privately informed agents? Information sharing affects contracting within competing organizations and induces agents’ strategies to be correlated through the distortions imposed by principals to obtain information. We show that the incentives to share information depend on the nature of upstream externalities between principals and the correlation of agents’ information. With small externalities, principals share information when externalities and correlation have opposite signs, and do not share information when externalities and correlation have the same sign. In this second case, principals face a prisoners’ dilemma since they obtain higher profits by sharing information.

Suggested Citation

  • Marco Pagnozzi & Salvatore Piccolo, 2012. "Information Sharing between Vertical Hierarchies," CSEF Working Papers 322, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  • Handle: RePEc:sef:csefwp:322
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    Cited by:

    1. Fiocco, Raffaele, 2016. "The strategic value of partial vertical integration," European Economic Review, Elsevier, vol. 89(C), pages 284-302.
    2. Michela Cella & Federico Etro, 2016. "Contract competition between hierarchies, managerial compensation and imperfectly correlated shocks," Journal of Economics, Springer, vol. 118(3), pages 193-218, July.
    3. Attar, Andrea & Campioni, Eloisa & Piaser, Gwenaël, 2018. "On competing mechanisms under exclusive competition," Games and Economic Behavior, Elsevier, vol. 111(C), pages 1-15.
    4. Piccolo, Salvatore & Tarantino, Emanuele & Ursino, Giovanni, 2015. "The value of transparency in multidivisional firms," International Journal of Industrial Organization, Elsevier, vol. 41(C), pages 9-18.
    5. Drugov, Mikhail, 2014. "Bargaining with Informational Externalities in a Market Equilibrium," CEPR Discussion Papers 10021, C.E.P.R. Discussion Papers.
    6. Susumu Cato & Akifumi Ishihara, 2017. "Transparency and Performance Evaluation in Sequential Agency," Journal of Law, Economics, and Organization, Oxford University Press, vol. 33(3), pages 475-506.
    7. Battaggion, Maria Rosa & Cerasi, Vittoria, 2020. "Strategic interlocking directorates," Journal of Economic Behavior & Organization, Elsevier, vol. 178(C), pages 85-101.
    8. Troya-Martinez, Marta, 2016. "Vagueness and information-sharing," Games and Economic Behavior, Elsevier, vol. 100(C), pages 301-320.
    9. Maria Rosa Battaggion & Vittoria Cerasi, 2018. "Endogenous interlocking directorates," Working Papers 380, University of Milano-Bicocca, Department of Economics, revised 01 May 2018.

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    More about this item

    Keywords

    communication; information sharing; adverse selection; vertical hierarchies;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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