Contractual Externalities and Common Agency Equilibria
By David Martimort, Lars A. Stole. Social Science Research Network, 2003
130 citations recorded by the source corpus.
This paper characterizes the equilibrium sets of common agency games with direct externalities between principals when they compete with nonlinear prices. Direct externalities arise when the contracting variable of one principal directly affects the other principal's payoff. First, we characterize the set of pure-strategy, symmetric equilibria under complete information of an intrinsic common agency game. This set of equilibria is large because of the presence of price-output offers by the principals that are unchosen by the agent in equilibrium. Equilibria exist in which principals offer out-of-equilibrium price-output choices to the agent and induce aggressive, low-price behavior corresponding to marginal-cost pricing in the extreme case. We then show that this equilibrium set of outputs is robust to the possibility that agent refuses any of the offered contracts; the case of delegated agency. Second, we introduce asymmetric information in order to rationalize existing nonlinear pricing contracts. The introduction of asymmetric information has the effect of restricting the set of equilibrium outputs of the intrinsic common agency game.
Subfields: Economics and Econometrics, Management Science and Operations Research
View Paper: https://www.semanticscholar.org/paper/a46eca811a74654369f6e07962711d6d356fa241
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In Economics and Econometrics
In Management Science and Operations Research
Citations in the corpus
- Multiple-Bank Lending, Creditor Rights and Information Sharing (2009, unknown): “Martimort and Stole (2003, 2009) study common agency models with adverse selection and menus. they can condition their loans on the borrowers contractual history, and thereby better guard against opportunistic lending.”
- Price Discrimination and Competition (2007, background): “Other related papers, covering a variety of applications, include Gal-Or (1991), Laffont and Tirole (1991), Biglaiser and Mezzetti (1993), Bond and Gresik (1996), Martimort (1996), Mezzetti (1997), Calzolari (2004), and Martimort and Stole (2003).”