Tuesday, March 8, 2011
Endogenous Market Structures and Contract Theory: Delegation, principal-agent contracts, screening, franchising and tying
Posted by D. Daniel Sokol
Federico Etro (Department of Economics, University Of Venice Cà Foscari) has posted Endogenous Market Structures and Contract Theory: Delegation, principal-agent contracts, screening, franchising and tying.
ABSTRACT: I study the role of unilateral strategic contracts for firms active in markets with price competition and endogenous entry. Traditional results change substantially when the market structure is endogenous rather than exogenous. They concern 1) contracts of managerial delegation to non-profit maximizers, 2) incentive principal-agent contracts in the presence of moral hazard on cost reducing activities, 3) screening contracts in case of asymmetric information on the productivity of the managers, 4) vertical contracts of franchising in case of hold-up problems and 5) tying contracts by monopolists competing also in secondary markets. Firms use always these contracts to strengthen price competition and manage to obtain positive profits in spite of free entry.