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Reciprocal contracting

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  • Peters, Michael

Abstract

This paper models competing mechanism games as extensive-form games where the extensive form is incompletely understood by a modeler, typically because the modeler doesn't see all the messages that are being exchanged and doesn't understand all the contracts that can be enforced. For this reason, the revelation principle can't be used to characterize supportable outcomes. The paper provides a relatively weak restriction, referred to as regularity, on the unknown part the competing mechanism game. This condition makes it possible to characterize the set of supportable equilibrium outcomes of the unknown part of the game using information about the part of the game the modeler does understand. In addition, the paper provides a canonical game called the reciprocal contracting game which supports as an equilibrium every equilibrium outcome of any regular competing mechanism game that embeds the known part of the game. As a consequence, the reciprocal contracting game can be used as a stand-in for the true game.

Suggested Citation

  • Peters, Michael, 2015. "Reciprocal contracting," Journal of Economic Theory, Elsevier, vol. 158(PA), pages 102-126.
    • Handle: RePEc:eee:jetheo:v:158:y:2015:i:pa:p:102-126
    DOI: 10.1016/j.jet.2015.04.003
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    References listed on IDEAS

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    1. Pavan, Alessandro & Calzolari, Giacomo, 2009. "Sequential contracting with multiple principals," Journal of Economic Theory, Elsevier, vol. 144(2), pages 503-531, March.
    2. Michael Peters & Balázs Szentes, 2012. "Definable and Contractible Contracts," Econometrica, Econometric Society, vol. 80(1), pages 363-411, January.
    3. Han, Seungjin, 2015. "Robust competitive auctions," Economics Letters, Elsevier, vol. 136(C), pages 207-210.
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    7. McAfee, R Preston, 1993. "Mechanism Design by Competing Sellers," Econometrica, Econometric Society, vol. 61(6), pages 1281-1312, November.
    8. Han, Seungjin, 2006. "Menu theorems for bilateral contracting," Journal of Economic Theory, Elsevier, vol. 131(1), pages 157-178, November.
    9. Peters, Michael & Troncoso-Valverde, Cristián, 2013. "A folk theorem for competing mechanisms," Journal of Economic Theory, Elsevier, vol. 148(3), pages 953-973.
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    16. Calzolari, Giacomo & Pavan, Alessandro, 2008. "On the use of menus in sequential common agency," Games and Economic Behavior, Elsevier, vol. 64(1), pages 329-334, September.
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    18. Ilya Segal & Michael D. Whinston, 2003. "Robust Predictions for Bilateral Contracting with Externalities," Econometrica, Econometric Society, vol. 71(3), pages 757-791, May.
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    Citations

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    Cited by:

    1. Forges, Françoise & Horst, Ulrich, 2018. "Sender–receiver games with cooperation," Journal of Mathematical Economics, Elsevier, vol. 76(C), pages 52-61.
    2. Attar, Andrea & Campioni, Eloisa & Piaser, Gwenaël, 2019. "Private communication in competing mechanism games," Journal of Economic Theory, Elsevier, vol. 183(C), pages 258-283.
    3. Attar, Andrea & Campioni, Eloisa & Mariotti, Thomas & Piaser, Gwenaël, 2021. "Competing mechanisms and folk theorems: Two examples," Games and Economic Behavior, Elsevier, vol. 125(C), pages 79-93.
    4. Gorkem Celik & Michael Peters, 2016. "Reciprocal relationships and mechanism design," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 49(1), pages 374-411, February.
    5. Arribas, I. & Urbano, A., 2017. "Multiproduct trading with a common agent under complete information: Existence and characterization of Nash equilibrium," Journal of Economic Theory, Elsevier, vol. 167(C), pages 14-38.
    6. Juan I. Block & David K. Levine, 2016. "Codes of conduct, private information and repeated games," International Journal of Game Theory, Springer;Game Theory Society, vol. 45(4), pages 971-984, November.
    7. Laura Doval & Jeffrey C. Ely, 2020. "Sequential Information Design," Econometrica, Econometric Society, vol. 88(6), pages 2575-2608, November.

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    More about this item

    Keywords

    Digital markets; Revelation principle; Efficiency;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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