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Private contracting with externalities: Divide and conquer?

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  • Miklós-Thal, Jeanine
  • Shaffer, Greg

Abstract

This paper considers the efficacy of divide-and-conquer strategies in principal-agent games involving contracting with externalities. We find that whereas divide-and-conquer offers can arise in equilibrium under some conditions when the principal’s offers are publicly observable, they cannot arise in equilibrium when the principal’s offers are privately observable and the agents hold passive out-of-equilibrium beliefs. This insight applies to technology and platform adoption decisions with network effects, labor relations, settlement negotiations, and input licensing, among others.

Suggested Citation

  • Miklós-Thal, Jeanine & Shaffer, Greg, 2017. "Private contracting with externalities: Divide and conquer?," International Journal of Industrial Organization, Elsevier, vol. 50(C), pages 460-472.
    • Handle: RePEc:eee:indorg:v:50:y:2017:i:c:p:460-472
    DOI: 10.1016/j.ijindorg.2016.03.002
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    References listed on IDEAS

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    10. Yeon-Koo Che & Kathryn E. Spier, 2008. "Exploiting Plaintiffs through Settlement: Divide and Conquer," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 164(1), pages 4-23, March.
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    3. Ulsaker, Simen A., 2020. "Competing buyers, rent extraction and inefficient exclusion," International Journal of Industrial Organization, Elsevier, vol. 68(C).

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    More about this item

    Keywords

    Principal-agent games; Divide and conquer strategies; Network effects; Two-sided markets; Union formation; Input licensing;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process

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