Competition In or For the Field: Which Is Better?

Eduardo Engel, Ronald Fischer and Alexander Galetovic
Additional contact information
Alexander Galetovic: University of Chile

No 1358, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: A principal, who wants prices to be as lowas possible, contracts with agents who would like to charge the monopoly price. The principal chooses between a Demsetz auction, which awards an exclusive contract to the agent bidding the lowest price (competition for the field) and having two agents provide the good under (imperfectly) competitive conditions (competition in the field). We obtain a simple sufficient condition showing unambiguously which option is best. The condition depends only on the shapes of the surplus function of the principal and the profit function of agents, and is independent of the particular duopoly game played ex post. We apply this condition to three canonical examples -- procurement, royalty contracts and dealerships -- and find that whenever marginal revenue for the final good is decreasing in the quantity sold, the principal prefers a Demsetz auction. Moreover, a planner who wants to maximize social surplus also prefers a Demsetz auction.

Keywords: Demsetz auction; Double marginalization; Franchising; Joint vs. separate auctions; Monopoly; Procurement; Dealerships; Royalty contracts (search for similar items in EconPapers)
JEL-codes: D44 L12 L92 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2002-03, Revised 2007-07
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Competition In or For the Field: Which Is Better? (2002)
Working Paper: Competition in or for The Field: Which is Better? (2002)
Working Paper: Competition In or For the Field: Which is Better (2002)
Working Paper: Competition in or for the Field: Which is Better? (2002)
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