IDEAS home Printed from https://ideas.repec.org/p/bri/cmpowp/02-048.html
   My bibliography  Save this paper

Bilateral Control with Vertical Contracts

Author

Listed:
  • Patrick Rey
  • Thibaud Verge

Abstract

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.

Suggested Citation

  • Patrick Rey & Thibaud Verge, 2002. "Bilateral Control with Vertical Contracts," The Centre for Market and Public Organisation 02/048, The Centre for Market and Public Organisation, University of Bristol, UK.
    • Handle: RePEc:bri:cmpowp:02/048
    as

    Download full text from publisher

    File URL: http://www.bris.ac.uk/Depts/CMPO/workingpapers/wp48.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Oliver Hart & Jean Tirole, 1990. "Vertical Integration and Market Foreclosure," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(1990 Micr), pages 205-286.
    2. Henrick Horn & Asher Wolinsky, 1988. "Bilateral Monopolies and Incentives for Merger," RAND Journal of Economics, The RAND Corporation, vol. 19(3), pages 408-419, Autumn.
    3. 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.
    4. Rey, Patrick & Tirole, Jean, 2007. "A Primer on Foreclosure," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 33, pages 2145-2220, Elsevier.
    5. 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 423-454, Fall.
    6. Martin, Stephen & Normann, Hans-Theo & Snyder, Christopher M, 2001. "Vertical Foreclosure in Experimental Markets," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 466-496, Autumn.
    7. 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 210-230, March.
    8. Ilya Segal & Michael D. Whinston, 2003. "Robust Predictions for Bilateral Contracting with Externalities," Econometrica, Econometric Society, vol. 71(3), pages 757-791, May.
    9. 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.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lømo, Teis Lunde, 2015. "Risk sharing mitigates opportunism in vertical contracting," Working Papers in Economics 10/15, University of Bergen, Department of Economics.
    2. Pagnozzi, Marco & Piccolo, Salvatore & Reisinger, Markus, 2021. "Vertical contracting with endogenous market structure," Journal of Economic Theory, Elsevier, vol. 196(C).
    3. Michele Bisceglia & Jorge Padilla & Salvatore Piccolo, 2019. "When Prohibiting Platform Parity Agreements Harms Consumers," CSEF Working Papers 542, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    4. Giovanni Immordino & Salvatore Piccolo & Paolo Roberti, 2018. "Criminal Networks, Market Externalities and Optimal Leniency," CSEF Working Papers 519, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    5. Milliou, Chrysovalantou & Petrakis, Emmanuel, 2007. "Upstream horizontal mergers, vertical contracts, and bargaining," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 963-987, October.
    6. Moellers, Claudia & Normann, Hans-Theo & Snyder, Christopher M., 2017. "Communication in vertical markets: Experimental evidence," International Journal of Industrial Organization, Elsevier, vol. 50(C), pages 214-258.
    7. Eguia, Jon X. & Llorente-Saguer, Aniol & Morton, Rebecca & Nicolò, Antonio, 2018. "Equilibrium selection in sequential games with imperfect information," Games and Economic Behavior, Elsevier, vol. 109(C), pages 465-483.
    8. Bakaouka, Elpiniki & Milliou, Chrysovalantou, 2018. "Vertical licensing, input pricing, and entry," International Journal of Industrial Organization, Elsevier, vol. 59(C), pages 66-96.
    9. Nocke, Volker & Rey, Patrick, 2018. "Exclusive dealing and vertical integration in interlocking relationships," Journal of Economic Theory, Elsevier, vol. 177(C), pages 183-221.
    10. Gregory S. Crawford & Ali Yurukoglu, 2012. "The Welfare Effects of Bundling in Multichannel Television Markets," American Economic Review, American Economic Association, vol. 102(2), pages 643-685, April.
    11. Bisceglia, Michele & Padilla, Jorge & Piccolo, Salvatore, 2021. "When prohibiting wholesale price-parity agreements may harm consumers," International Journal of Industrial Organization, Elsevier, vol. 76(C).
    12. Padilla, Jorge & Piccolo, Salvatore, 2020. "Does direct connect benefit travellers?," Economics Letters, Elsevier, vol. 188(C).
    13. Papadopoulos, Konstantinos G. & Skartados, Panagiotis, 2021. "The ambiguous competitive effects of passive partial forward integration," UC3M Working papers. Economics 33354, Universidad Carlos III de Madrid. Departamento de Economía.
    14. Chrysovalantou Milliou & Apostolis Pavlou, 2020. "Foreign direct investment in vertically related markets," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 53(1), pages 284-320, February.
    15. Konstantinos G. Papadopoulos & Emmanuel Petrakis & Panagiotis Skartados, 2022. "The ambiguous competitive effects of passive partial forward ownership," Southern Economic Journal, John Wiley & Sons, vol. 89(2), pages 540-568, October.
    16. Bisceglia, Michele & Padilla, Jorge & Piccolo, Salvatore & Shekhar, Shiva, 2022. "Vertical integration, innovation and foreclosure with competing ecosystems," Information Economics and Policy, Elsevier, vol. 60(C).
    17. Emanuele Bacchiega & Olivier Bonroy & Emmanuel Petrakis, 2018. "Contract contingency in vertically related markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 27(4), pages 772-791, October.
    18. Johannes Münster & Markus Reisinger, 2021. "Sequencing Bilateral Negotiations with Externalities," ECONtribute Discussion Papers Series 096, University of Bonn and University of Cologne, Germany.
    19. Do, Jihwan & Miklós-Thal, Jeanine, 2023. "Partial secrecy in vertical contracting," International Journal of Industrial Organization, Elsevier, vol. 90(C).
    20. Alipranti, Maria & Milliou, Chrysovalantou & Petrakis, Emmanuel, 2014. "Price vs. quantity competition in a vertically related market," Economics Letters, Elsevier, vol. 124(1), pages 122-126.

    More about this item

    Keywords

    secret contracts; passive beliefs; wary beliefs; resale price maintenance;
    All these keywords.

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bri:cmpowp:02/048. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/cmbriuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.