 Open price contracts, locked-in buyers, and opportunismMichael D. Noel and Hongjie Qiang International Journal of Industrial Organization, 2022, vol. 85, issue C Abstract: There is a large literature on incomplete contracts, but one prominent type of incomplete contract has largely gone unnoticed. An “open price contract” is one in which a buyer commits to purchasing goods from a seller even though the price has not been agreed upon at the time of signing. Open price contracts generally give the seller the right to set prices ex post, and the buyer is then obligated to purchase from the seller at those prices. This gives rise to obvious incentives for short-run opportunistic pricing by the seller, but also disincentives from long-run reputational consequences. In this article, we focus on a specific application where open price contracts are common and test for opportunistic ex-post pricing by sellers on locked-in buyers. We find that sellers’ long-run reputational incentives dominate opportunistic incentives, consistent with lessons from the relational contracts literature. Keywords: Incomplete contracts; Open price contracts; Open price terms; Opportunistic pricing; Lock-in; Locked-in buyers; Cost passthrough; Wholesale; Fuel; Gasoline (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:85:y:2022:i:c:s0167718722000534 DOI: 10.1016/j.ijindorg.2022.102877 Access Statistics for this article International Journal of Industrial Organization is currently edited by P. Bajari, B. Caillaud and N. Gandal More articles in International Journal of Industrial Organization from Elsevier |
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