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Delegated agency in multiproduct oligopolies with indivisible goods

Iván Arribas () and Amparo Urbano

No 210, Discussion Papers in Economic Behaviour from University of Valencia, ERI-CES

Abstract: This paper focuses on oligopolistic markets in which indivisible goods are sold by multiproduct firms to a continuum of homogeneous buyers, with measure normalized to one, who have preferences over bundles of products. Our analysis contributes to the literature on delegated agency games with direct externalities and complete information, extending the insights by Berheim and Whinston (1986, a , b) to markets with indivisibilities. By analyzing a kind of extended contract schedules - mixed bundling prices - that discriminate on exclusivity, the paper shows that efficient equilibria always exist in such settings. There may also exist inefficient equilibria in which the agent chooses a suboptimal bundle and no principal has a profitable deviation inducing the agent to buy the surplus-maximizing bundle because of a coordination problem among the pricipals. Inefficient equilibria can be ruled out by either assuming that all firms are pricing unsold bundles at the same profit margin as the bundle sold at equilibrium, or imposing the solution concept of subgame perfect strong equilibrium, which requires the absence of profitable deviations by any subset of principals and the agent. More specific results about the structure of equilibrium prices and payoffs for common agency outcomes are offered when the social surplus function is monotone and either submodular or supermodular.

Keywords: Multiproduct Price Competition; Delegated Agency Games; Mixed Bundling Prices; Subgame Perfect Nash Equilibrium; Strong Equilibrium (search for similar items in EconPapers)
JEL-codes: C72 D21 D41 D43 L13 (search for similar items in EconPapers)
Date: 2010-04
New Economics Papers: this item is included in nep-bec, nep-com and nep-gth
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