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Endogenous Market Structures and Contract Theory

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  • Federico Etro

Abstract

I study the role of unilateral strategic contracts for firms active in markets with price competition and endogenous entry. Traditional results change substantially when the market structure is endogenous rather than exogenous. They concern 1) contracts of managerial delegation to non-profit maximizers, 2) incentive contracts in the presence of moral hazard on cost reducing activities, 3) screening contracts in case of asymmetric information on the productivity of the managers, 4) vertical contracts of franchising in case of hold-up problems and 5) tying contracts by monopolists competing also in secondary markets. Firms use always these contracts to strengthen price competition and manage to obtain positive pro?ts in spite of free entry.

Suggested Citation

  • Federico Etro, 2010. "Endogenous Market Structures and Contract Theory," Working Papers 181, University of Milano-Bicocca, Department of Economics, revised Mar 2010.
    • Handle: RePEc:mib:wpaper:181
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    Cited by:

    1. Federico Etro, 2010. "Endogenous market structures and the optimal financial structure," Canadian Journal of Economics, Canadian Economics Association, vol. 43(4), pages 1333-1352, November.
    2. Aggey Semenov & Julian Wright, 2011. "Entry deterrrence via renegotiation-proof non-exclusive contracts," Working Papers 1105E, University of Ottawa, Department of Economics.
    3. Federico Etro & Michela Cella, 2013. "Equilibrium Principal‐Agent Contracts: Competition and R&D Incentives," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(3), pages 488-512, September.
    4. Federico Etro, 2012. "Leadership in Multi-sided Markets and Dominance in Online Advertising," Chapters, in: Joseph E. Harrington Jr & Yannis Katsoulacos (ed.), Recent Advances in the Analysis of Competition Policy and Regulation, chapter 11, Edward Elgar Publishing.
    5. Baranes, Edmond & Podesta, Marion & Poudou, Jean-Christophe, 2016. "Mixed bundling may hinder collusion," Research in Economics, Elsevier, vol. 70(4), pages 638-658.
    6. Etro, Federico, 2013. "Advertising and search engines. A model of leadership in search advertising," Research in Economics, Elsevier, vol. 67(1), pages 25-38.
    7. Henrik Vetter, 2020. "Incentive pay and rent in oligopoly," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(8), pages 1621-1628, December.

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    More about this item

    Keywords

    Strategic delegation; Incentive contracts; Screening contracts; Franchising; Tying; Endogenous market structures;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation

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