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;
JEL codes
- C72: Noncooperative Games
- D82: Asymmetric and Private Information • Mechanism Design
- D83: Search • Learning • Information and Knowledge • Communication • Belief
- L13: Oligopoly and Other Imperfect Markets
- L42: Vertical Restraints • Resale Price Maintenance • Quantity Discounts
Reference
Michele Bisceglia, “Vertical Contract Disclosure in Three‐Tier Industries”, The Journal of Industrial Economics, vol. 71, n. 1, April 2023, pp. 1–46.
See also
Published in
The Journal of Industrial Economics, vol. 71, n. 1, April 2023, pp. 1–46