Informational Alliances

David P. Baron and David Besanko

The Review of Economic Studies, 1999, vol. 66, issue 4, 743-768

Abstract: An informational alliance involves the consolidation of the private information of independent suppliers in anticipation of a contracting opportunity with a principal. An informational alliance is an intermediate form of organization between the consolidation of information as in a merger and the suppliers remaining separate entities. It can Pareto dominate a merger, independent contracting, and hierarchical contracting, so a principal can benefit by allowing suppliers to organize the supply network. An informational alliance forms at the nexus of internally-verifiable private information. The principal's contracting problem then involves a participation condition with a reservation value that is a function of type.

Date: 1999
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