Vertical Contract Disclosure in Three‐Tier Industries

Michele Bisceglia
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Michele Bisceglia: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement

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Abstract: Consider a three-tier industry with a monopolist supplying a manufacturer which sells its product to final consumers through two retailers. Contracts are linear and secret. Hence, upon receiving an out-of-equilibrium offer, each retailer must form a belief about the identity of the deviating upstream firm. This beliefs' specification problem wipes out if an Open Book Accounting (OBA) policy is implemented, whereby the input price is disclosed to retailers. Under Cournot (Bertrand) competition, OBA increases industry profits and consumer surplus if retailers believe that any out-of-equilibrium offer is more likely to reflect a deviation by the upstream supplier (by the manufacturer).

Keywords: Three-Tier Industry; Off-Equilibrium Path Beliefs; Secret Contracts; Contracts’ Disclosure; Open Book Accounting (search for similar items in EconPapers)
Date: 2023-03
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Published in Journal of Industrial Economics, 2023, 71 (1), pp.1-46. ⟨10.1111/joie.12315⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04934566

DOI: 10.1111/joie.12315

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