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A Common Agency with Incomplete Information

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  • Esther Gal-Or

Abstract

Forming a common agency in oligopoly may introduce both advantageous and disadvantageous implications on the profits of the firms, if agents have access to private information about their costs. In addition to facilitating better coordination of production and pricing decisions, a common agency limits the firms' options in extracting the informational rents of their agents. When the latter informational disadvantage is significant, firms select to contract with independent agents. Contracting with independent agents arises as equilibrium behavior, when the prior uncertainty about the agent's cost or when the degree of correlation among the costs of different agents are significant.

Suggested Citation

  • Esther Gal-Or, 1991. "A Common Agency with Incomplete Information," RAND Journal of Economics, The RAND Corporation, vol. 22(2), pages 274-286, Summer.
    • Handle: RePEc:rje:randje:v:22:y:1991:i:summer:p:274-286
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