Disclosure regime of contract terms and bargaining in vertical markets

Panagiotis Skartados
Authors registered in the RePEc Author Service: Emmanuel Petrakis

UC3M Working papers. Economics from Universidad Carlos III de Madrid. Departamento de Economía

Abstract: We consider a vertically related market where an upstream monopolist supplies two downstream Cournot competitors. We allow the vertical contract terms to be either interim observable or secret. We address a dichotomy in the literature by endogenizing the disclosure regime of contract terms. The latter could be set via a Non-Disclosure Agreement. Firms bargain over both the disclosure regime and the contract terms. Our results indicate that when firms trade over two-part tariffs, universal interim observability is the unique equilibrium no matter the bargaining power distribution or the product differentiation. Yet, when firms trade over linear tariffs there may be a multiplicity of equilibria. We also show that under competing vertical chains we get universal interim observability as a unique equilibrium no matter the upstream structure. Our results qualitatively hold under Bertrand competition too. Our welfare analysis indicates that universal interim observability and two-part tariffs yield the highest consumer surplus and total welfare.

Keywords: Bilateral; Contracting; Vertical; Relations; Two-Part; Tariffs; Bargaining; Nondisclosure; Agreements; Secret; Contracts (search for similar items in EconPapers)
JEL-codes: D43 L13 L14 (search for similar items in EconPapers)
Date: 2022-02-16
New Economics Papers: this item is included in nep-com, nep-cta, nep-gth, nep-ind, nep-mic and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:cte:werepe:34144

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