Market Participation in Delegated and Intrinsic Common-Agency Games

Posted: 15 Feb 2014

See all articles by Lars Stole

Lars Stole

University of Chicago - Booth School of Business

David Martimort

University of Toulouse 1 - Industrial Economic Institute (IDEI); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: September 29, 2008

Abstract

We study how competition in nonlinear pricing between two principals (sellers) affects market participation by a privately-informed agent (consumer). When participation is restricted to all-or-nothing ("intrinsic" agency), the agent must choose between both principals' contracts and selecting her outside option. When the agent is afforded the additional possibilities of choosing only one contract ("delegated" agency), competition is more intense. The two games have distinct predictions for participation. Intrinsic agency always induces more distortion in participation relative to the monopoly outcome and equilibrium allocations are discontinuous for the marginal consumer. Under delegated agency, relative to monopoly market participation increases (resp. decreases) when contracting variables are substitutes (resp. complements) on the intensive margin. Equilibrium allocations are continuous for the marginal consumer and the range of product offerings is identical to both the first-best and the monopoly outcome.

Keywords: common agency, nonlinear pricing, market participation

JEL Classification: D82

Suggested Citation

Stole, Lars A. and Martimort, David, Market Participation in Delegated and Intrinsic Common-Agency Games (September 29, 2008). RAND Journal of Economics, Vol. Spring, 2009. Available at SSRN: https://ssrn.com/abstract=2396122

Lars A. Stole (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7309 (Phone)
773-702-0458 (Fax)

David Martimort

University of Toulouse 1 - Industrial Economic Institute (IDEI) ( email )

Manufacture des Tabacs
21 Allee de Brienne bat. F
Toulouse Cedex, F-31000
France
+33 5 6112 8614 (Phone)
+33 5 6112 8637 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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