Friday, July 13, 2018
Patrick Rey (Toulouse School of Economics, University Toulouse Capitole) and Thibaud Vergé (CREST; ENSAE) theorize about Secret contracting in multilateral relations.
ABSTRACT: We develop a general but tractable framework of multilateral vertical contracting between upstream and downstream ?firms, without any restriction on tariffs, and yet taking into account their impact on downstream competition. In equilibrium, tariffs are cost-based and replicate the outcome of a multi-brand oligopoly, a finding in line with the analysis of a recent merger. To illustrate its versatility, we use this framework to analyze the effect of vertical restraints (resale price maintenance and retail price parity clauses) and of alternative business models (resale vs. agency). Finally, we extend the framework so as to endogenize the market structure.