The opportunism problem revisited: The case of retailer sales effort
Tommy Gabrielsen () and
Bjørn Olav Johansen ()
No 07/13, Working Papers in Economics from University of Bergen, Department of Economics
We study a setting where the opportunism or commitment problem identifed by Hart and Tirole (1990) may arise. An upstream monopolist may sell its product to two differentiated downstream retailers. Contract unobservability induces the manufacturer and each retailer to free-ride on margins earned by rival retailers, resulting in low transfer prices and low overall profit. O'Brien and Shaffer (1992) proposed a solution to this problem involving squeezing retail margins by using maximum RPM and high transfer prices. We show that when retail demand depends in any degree of retail sales effort, this equilibrium breaks down, and the opportunism problem reappears with full force. We show that no type of own-sale contracts or combination of own-sale restraints will solve the problem if sales effort matter. Moreover we show that certain horizontal commitments, as for example industrywide minimum RPM, may restore the fully integrated outcome, but only in special cases.
Keywords: Opportunism; RPM; sales effort (search for similar items in EconPapers)
JEL-codes: L12 L14 L42 (search for similar items in EconPapers)
Pages: 28 pages
New Economics Papers: this item is included in nep-com, nep-mic and nep-mkt
References: Add references at CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
http://ekstern.filer.uib.no/svf/2013/07-2013_Tommy ... 20sales%20effort.pdf Full text (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:hhs:bergec:2013_007
Access Statistics for this paper
More papers in Working Papers in Economics from University of Bergen, Department of Economics Institutt for økonomi, Universitetet i Bergen, Postboks 7802, 5020 Bergen, Norway. Contact information at EDIRC.
Bibliographic data for series maintained by Kjell Erik Lommerud ().