Working Paper: CEPR ID: DP16753
Authors: Damien J. Neven; Salvatore Piccolo; Enrique Andreu
Abstract: We characterize the degree of price discretion that competing principals award their agents in aframework where the latter are informed about demand, while the former learn it probabilisticallyand may exchange this information on a reciprocal basis. Partial delegation equilibria exist with andwithout information sharing and feature binding price caps (list prices) that prevent agents to pass ontheir distribution costs to consumers. Yet, these equilibria are more likely to occur with informationsharing than without. Moreover, while principals exchange information when products are sufficientlydifferentiated and downstream distribution costs are neither too high nor too low, expected prices areunambiguously lower with than without information sharing. Finally, we also argue why, and how, aninformation-sharing agreement can be implemented by a simple communication protocol according towhich principals disclose their price intentions.
Keywords: Competing Principals; Delegates; Sales Discretion; Information Sharing; List Prices
JEL Codes: L42; L50; L81
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| information sharing (O36) | expected prices (P22) |
| information sharing (O36) | passthrough rate of distribution costs (D39) |
| passthrough rate of distribution costs (D39) | expected prices (P22) |
| information sharing (O36) | consumer outcomes (G52) |
| product differentiation and distribution costs (D39) | information-sharing agreement (F53) |
| no information sharing (D89) | expected prices (P22) |