Competition In or For the Field: Which is Better

Eduardo Engel, Ronald Fischer and Alexander Galetovic

Working Papers from Economic Growth Center, Yale University

Abstract: In many circumstances, a principal, who wants prices to be as low as possible, must contract with agents who would like to charge the monopoly price. This paper compares a Demsetz auction, which awards an exclusive contract to the agent bidding the lowest price (competition for the field) with 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, a Demsetz auction is best. 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: 16 pages
Date: 2002-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.econ.yale.edu/growth_pdf/cdp844.pdf (application/pdf)

Related works:
Working Paper: Competition In or For the Field: Which Is Better? (2007)
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)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:egc:wpaper:844

Access Statistics for this paper

More papers in Working Papers from Economic Growth Center, Yale University Contact information at EDIRC.
Bibliographic data for series maintained by Benjamin King ( this e-mail address is bad, please contact ).