Do Agency Contracts Facilitate Upstream Collusion?
37 Pages Posted: 21 May 2018 Last revised: 10 Feb 2019
Date Written: February 8, 2019
This paper presents a study of whether agency contracts facilitate collusion among upstream manufacturers, as compared to traditional wholesale contracts. We consider an infinitely repeated game with a monopoly platform and multiple manufacturers. Our analysis shows that the critical discount factor, above which the upstream collusion can be sustainable by Nash-reversion trigger strategies, is the same under wholesale and agency contracts. That result indicates that the agency contract is not necessarily anticompetitive. By contrast, in an extended model with competing platforms, we show that the agency contract facilitates upstream collusion because accepting it under the agency contract mitigates platform competition.
Keywords: upstream collusion, cartel, stability, agency contract, wholesale contract
JEL Classification: L13, L42, L81, D21, D43, D86, K21
Suggested Citation: Suggested Citation