American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Vertical Contracting with Informational Opportunism
American Economic Review
vol. 105,
no. 7, July 2015
(pp. 2141–82)
Abstract
We consider vertical contracting arrangements between a manufacturer and a retailing network when retailers have private information and the organization is run through bilateral contracts. We highlight a new form of informational opportunism arising when the manufacturer manipulates information learned separately in each relationship. We characterize the set of allocations robust to such opportunism by means of simple ex post incentive compatibility constraints. Those constraints limit the manufacturer's ability to use yardstick competition among retailers. They simplify contracts and restore a rent/efficiency trade-off even with correlated information. We show that sell-out contracts are optimal under a wide range of circumstances. (JEL D21, D86, L14, L60, L81)Citation
Dequiedt, Vianney, and David Martimort. 2015. "Vertical Contracting with Informational Opportunism." American Economic Review, 105 (7): 2141–82. DOI: 10.1257/aer.20121640Additional Materials
JEL Classification
- D21 Firm Behavior: Theory
- D86 Economics of Contract: Theory
- L14 Transactional Relationships; Contracts and Reputation; Networks
- L60 Industry Studies: Manufacturing: General
- L81 Retail and Wholesale Trade; e-Commerce