Friday, March 24, 2017
Pio Baake, German Institute for Economic Research (DIW Berlin) and Andreas Harasser, German Institute for Economic Research (DIW Berlin) analyze Upstream Monopoly and Downstream Information Sharing.
ABSTRACT: We analyze a vertical structure with an upstream monopoly and two downstream retailers. Demand is uncertain but each retailer receives an informative private signal about the state of the demand. We construct an incentive compatible and ex ante balanced mechanism which induces the retailers to share their information truthfully. Information sharing can be profitable for the retailers but is likely to be detrimental for social welfare.