Bilateral Control with Vertical Contracts

Patrick Rey and Thibaud Vergé

Industrial Organization from University Library of Munich, Germany

Abstract: A supplier is known to be subject to opportunism when contracting secretly with downstream competitors, particularly when downstream firms have "passive beliefs." We stress that in many situations, an equilibrium with passive beliefs may not exist and passive beliefs appear less plausible than "wary beliefs", introduced by McAfee and Schwartz, that account for multilateral deviations. We show that in a broad range of situations, equilibria with wary beliefs exist and reflect opportunism. Last, we confirm the insight, derived by O'Brien and Shaffer using a more ad-hoc equilibrium concept, that RPM eliminates the scope for opportunism.

Keywords: Opportunism; Secret Contracts; Beliefs; Resale Price Maintenance (search for similar items in EconPapers)
JEL-codes: L (search for similar items in EconPapers)
Date: 2003-09-23
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Related works:
Journal Article: Bilateral Control with Vertical Contracts (2004)
Working Paper: Bilateral Control with Vertical Contracts (2003)
Working Paper: Bilateral Control with Vertical Contracts (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpio:0309005

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