Unobserved Wholesale Contracts

Maarten Janssen () and Santanu Roy
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Maarten Janssen: University of Vienna

No 2310, Departmental Working Papers from Southern Methodist University, Department of Economics

Abstract: A manufacturer with private information about product quality may earn higher expected profit when their wholesale pricing contract with a retailer is unobserved by consumers. Secret wholesale contracts may prevent distortionary signaling by the manufacturer and double marginalization by the retailer. Instead, reasonable pooling outcomes exist where wholesale pricing is independent of quality, leaving the retailer and consumers in the dark about true quality. These outcomes may increase expected consumer and total surplus. The strategic interaction is different from standard signaling games. The pooling outcomes satisfy a new equilibrium refinement that we develop in the spirit of the Intuitive Criterion.

Keywords: Asymmetric Information; Product Quality; Vertical Contracts; Wholesale Pricing; Signaling; Pooling. (search for similar items in EconPapers)
JEL-codes: D43 D82 L13 L15 (search for similar items in EconPapers)
Date: 2023-08
New Economics Papers: this item is included in nep-com, nep-gth, nep-ind and nep-mic
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