Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Tuesday, March 8, 2011

Oligopolistic Screening and Two-way Distortion

Posted by D. Daniel Sokol

Michela Cella (Department of Economics, University Of Milan, Bicocca) and Federico Etro (Department of Economics, University Of Venice, Ca’ Foscari) describe Oligopolistic Screening and Two-way Distortion.

ABSTRACT: We analyze the choice of incentive contracts by oligopolistic firms that compete on the product market. Managers have private information and in the first stage they exert cost reducing effort. In equilibrium the standard "no distortion at the top" property disappears and two way distortions are optimal. We extend our analysis to other informational, contractual and competitive settings.

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