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Complementary Monopolies with Asymmetric Information

Didier Laussel () and Joana Resende
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Joana Resende: Economics Department, University of Porto

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Abstract: We investigate how asymmetric information on final demand affects strategic interaction between a downstream monopolist and a set of up-stream monopolists, who independently produce complementary inputs. We study an intrinsic private common agency game in which each supplier i independently proposes a pricing schedule contract to the assembler, specifying the supplier's payment as a function of the assembler's purchase of input i. We provide a necessary and sufficient equilibrium condition. A lot of equilibria satisfy this condition but there is a unique Pareto-undominated Nash equilibrium from the suppliers' point of view. In this equilibrium there are unavoidable efficiency losses due to excessively low sales of the good. However, suppliers may be able to limit these distortions by implicitly coordinating on an equilibrium with a rigid (positive) output in bad demand circumstances.

Keywords: complementary inputs; asymmetric information; private common agency games (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com and nep-gth
Date: 2018-12
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-01944314
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