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Private and Social Incentives for Vertical Contract Disclosure

11 Pages Posted: 30 Jul 2013  

Qihong Liu

University of Oklahoma - Department of Economics

X. Henry Wang

University of Missouri-Columbia

Date Written: July 29, 2013

Abstract

We follow the framework in Arya and Mittendorf (2011) but extend their analysis by investigating supplier(s)' equilibrium choices of disclosure or confidentiality regarding their contract terms with the downstream retailers. In the case of a common supplier, we find that the unique SPNE is for the supplier to choose disclosure. This private incentive is opposite to social incentive which calls for the regulator to choose confidentiality. In the case of dedicated suppliers, however, there are multiple SPNE due to coordination issues between the suppliers. The case which maximizes social surplus -- disclosure -- can be supported as a SPNE, together with the case of confidentiality which maximizes supplier profits at the cost of everyone else.

Keywords: Vertical market, Contract disclosure, Cournot competition

JEL Classification: D43, L13, L14

Suggested Citation

Liu, Qihong and Wang, X. Henry, Private and Social Incentives for Vertical Contract Disclosure (July 29, 2013). Available at SSRN: https://ssrn.com/abstract=2302711 or http://dx.doi.org/10.2139/ssrn.2302711

Qihong Liu (Contact Author)

University of Oklahoma - Department of Economics ( email )

Norman, OK 73019-2103
United States
405-325-5846 (Phone)

HOME PAGE: http://qliu.oucreate.com

X. Henry Wang

University of Missouri-Columbia

113 Professional Building
Columbia, MO 65211
United States

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