intertemporal cost dependence in the presence of managerial impatience abstract a multi period agency problem arising in the presence of intertemporal cost dependence is investigated the principal delegates production decisions to a manager who is impatient the manager has private information on the nature of cost dependence that takes the form of an experience effect since the impatient manager would not invest enough to gain experience the principal designs a second best scheme to motivate the manager to increase intertemporal profit for the firm the second best scheme is obtained as a direct revelation mechanism that specifies outputs prices as well as the manager s compensation a significant result is that unlike the first best case impatience is not necessarily a disadvantage with asymmetric information impatience can be exploited to reduce the manager s information rent resulting in preferred outcomes for the principal

bilateral bargaining with externalities this paper provides an analysis of a non cooperative pairwise bargaining game between agents in a network we establish that there exists an equilibrium that generates a coalitional bargaining division of the reduced surplus that arises as a result of externalities between agents that is we provide a non cooperative justification for a cooperative division of a non cooperative surplus the resulting division is related to the myerson shapley value with properties that are particularly useful and tractable in applications we demonstrate this by examining buyer seller networks and vertical foreclosure

buyer power with atomistic upstream entry can downstream consolidation increase production and welfare abstract this paper investigates the effects of buyer power on entry into an atomistic upstream market and economic welfare under reasonable market conditions we show that industries with a few buyers induce more upstream entry than industries with a larger number of firms in particular monopsony can be more conducive to entry and lead to higher social welfare than more fragmented industry structures this seeming paradox arises because a single buyer better internalizes the positive effects of entry on later periods supply conditions than a collection of firms this result is relevant in a number of market settings including markets for specialized labor and processing markets for agricultural products

intra firm bargaining under non binding contracts we present a new methodology for studying the problem of intra firm bargaining based on the notion that contracts cannot commit the firm and its agents to wages and employment we develop and analyse a general non cooperative multilateral bargaining framework between the firm and its employees and consider outcomes which are immune to renegotiations by any party equilibrium firm profits are characterizable as both a weighted average of a neo classical non bargaining firm s profits and a generalization of shapley value for a corresponding cooperative game furthermore the resulting payoffs induce economically significant distortions in the firm s input and organizational design decisions

a framework to analyze the performance of thinly traded agricultural commodity markets thinly traded agricultural commodity markets are a concern for farmers and policy markers due to the belief that prices in these settings will be highly volatile subject to manipulation and incapable of efficiently allocating resources analysis of thin agricultural markets has to date been impeded by lack of an appropriate analytical framework from which to study their behavior in this paper we propose the modern agricultural markets mam framework as an appropriate paradigm through which to view and evaluate thin markets we argue that thinly traded markets that meet key conditions required for a mam will generate maximum economic surplus and enable farmers to earn at least a competitive return on their investments in the absence of these conditions however the concerns known as the thin market problem have validity we set forth the mam framework interpret it in a thin market context and conduct several brief case studies of thin markets to illustrate use of the approach and draw some key inferences about these markets behavior the analysis indicates that appropriate government policies directed to thin markets are those that facilitate their convergence to mam status but in reality key policies under recent consideration would have the opposite effect

noncooperative bargaining hostages and optimal asset ownership this paper re examines the effect of asset ownership on investment decisions for a joint relationship in the absence of contracts on investment levels it obtains some results which contradict findings by sanford j grossman oliver d hart and john moore in particular it finds that the loss of ownership of an asset may increase the asset loser s investment incentive the difference between this paper and those authors papers stems from the different interpretations of the roles of the threat point and outside options in bargaining this paper also clarifies the role of relationship specific investments as a cause of integration copyright 1998 by american economic association

collusion exclusion and inclusion in random order bargaining this paper examines the profitability of three types of integration in a cooperative game solved by a random order value e g the shapley value collusion between players i and j is a contract merging their resources in the hands of one of them say i this contract can be represented as a combination of exclusion which lets i exclude j s resource but not use it himself and inclusion which lets i use j s resource but not exclude j from it this representation yields a third difference condition on the characteristic function that determines the profitability of collusion generalizing existing results for specific games namely collusion is profitable unprofitable when the complementarity of the colluding players is reduced increased by other players

contract duration and relationship specific investments empirical evidence from coal markets this paper examines the importance of specific relationship investments in determining the duration of coal contracts negotiated between coal suppliers and electric utilities data for 277 coal contracts are used to perform the analysis the results provide strong support for the view that buyers and sellers make longer commitments to the terms of future trade at the contract execution stage and rely less on repeated bargaining when relationship specific investments are more important

vertical foreclosure versus downstream competition with capital precommitment abstract the recent literature on vertical foreclosure suggests that vertical integration can have the anticompetitive effect of enabling an upstream firm to commit to restricting output to downstream firms at the monopoly level we allow the upstream firm to make an ex ante capital precommitment we show that if integration is outlawed the upstream firm will distort capital downward as an alternative device to restrict output we show that this alternative may be socially less efficient than vertical integration

the joint profit maximum as a free entry equilibrium outcome abstract this study investigates the degree of collusion that can be sustained at a free entry equilibrium when the number of active firms is endogenous an increase in the discount factor is found to have two counter acting effects on the incentive for active firms to deviate from the collusive arrangement holding the number of firms fixed a higher discount factor reduces the incentive for cheating according to the standard argument however a higher discount factor also makes entry more profitable since entry entails an initial loss the cost of entry and a future stream of positive profits raising the discount factor then increases the number of active firms which tends to increase the incentive for firms to cheat our analysis shows that the first effect dominates so that the joint profit maximum can be sustained as a free entry equilibrium outcome when the discount factor is sufficiently high

downstream mergers and producer s capacity choice why bake a larger pie when getting a smaller slice in this article the effect of downstream horizontal mergers on the upstream producer s capacity choice was studied contrary to conventional wisdom i find a nonmonotonic relationship horizontal mergers induce a higher upstream capacity if the cost of capacity is low and a lower upstream capacity if this cost is high this result is explained by decomposing the total effect into two competing effects a change in holdup and a change in bargaining erosion

does the baseball labor market contradict the human capital model of investment this paper examines whether experienced players in major league baseball are paid more than their contribution to team revenue the author shows that wages increase with experience independently of productivity gains the results therefore contradict the human capital model of investment the evidence is in fact consistent with implicit contract models because most older players are relatively overpaid copyright 1992 by mit press

robust predictions for bilateral contracting with externalities the paper studies bilateral contracting between one principal and n agents when each agent s utility depends on the principal s unobservable contracts with other agents we show that allowing deviations to menu contracts from which the principal chooses bounds equilibrium outcomes in a wide class of bilateral contracting games without imposing ad hoc restrictions on the agents beliefs this bound yields for example competitive convergence as n in environments in which an appropriately defined notion of competitive equilibrium exists we also examine the additional restrictions arising in two common bilateral contracting games the offer game in which the principal makes simultaneous offers to the agents and the bidding game in which the agents make simultaneous offers to the principal

vertical integration in the presence of upstream competition we analyse vertical integration when there is upstream competition and compare outcomes to the case where upstream assets are owned by a single agent i e upstream monopoly in so doing we make two contributions to the modelling of strategic vertical integration first we base industry structure namely the ownership of assets firmly within the property rights approach to firm boundaries second we model the potential multilateral negotiations using a fully specified non cooperative bargaining model designed to easily compare outcomes achieved under upstream competition and monopoly given this we demonstrate that vertical integration can alter the joint payoffs of integrating parties in ex post bargaining however this bargaining effect is stronger for firms integrating under upstream competition than upstream monopoly we also consider the potential for integration to internalise competitive externalities in manner that cannot be achieved under non integration we demonstrate that ex post monopolization is more likely to occur when there is an upstream monopoly than when there is upstream competition our general conclusion is that the simple intuition that the presence of upstream competition can mitigate and reduce the incentives for socially undesirable vertical integration is misplaced and depending upon the strength of downstream competition i e product differentiation the opposite could easily be the case journal of economic literature classification number l42

does asset ownership always motivate managers outside options and the property rights theory of the firm this paper studies the grossman hart moore ghm property rights approach to the theory of the firm under alternating offers bargaining when managers can pursue other occupations while negotiating over the division of the gains from cooperation the ghm results obtain if taking the best alternative job terminates bargaining outcomes are very different sometimes an agent with an important investment decision should not own the assets he works with sometimes independent assets should be owned together sometimes strictly complementary assets should be owned separately

opportunism in multilateral vertical contracting nondiscrimination exclusivity and uniformity comment an input supplier selling to competing downstream firms would benefit from publicly committing at the outset to all contracts efficient commitment however would require complete contracts the authors study instead bilateral contracting without commitment regarding others terms each firm then fears that the supplier might opportunistically renegotiate another s contract to increase bilateral profit at the firm s expense the authors show that nondiscrimination clauses generally cannot curb such third party opportunism even with symmetric firms to reassure firms crude forms of commitment may be adopted this could explain the pervasiveness of exclusivity arrangements and the striking uniformity and intertemporal rigidity of franchise contracts copyright 1994 by american economic association

spillovers complementarities and sorting in labor markets with an application to professional sports spillovers to productivity across workers may exist when workers produce in teams under certain conditions these spillovers may cause a worker s marginal product to differ across different firms empirical examination of professional basketball finds significant spillovers to offensive productivity but finds relatively little evidence for market sorting based on spillovers thus while teammate composition is important to a player s success there is no evidence for complementarity

countervailing power and dynamic efficiency this paper studies the impact of buyer power on dynamic efficiency we consider a bargaining model in which buyer power arises endogenously from size and may impact on a supplier s incentives to invest in lower marginal cost we challenge the view frequently expressed in policy circles that the exercise of buyer power stifles suppliers incentives instead we find that the presence of larger buyers keeps a supplier more on his toes and induces him to improve the competitiveness of his offering in terms of both price and quality relative to buyers alternative options

collusive market structure under learning by doing and increasing returns learning by doing and increasing returns are often perceived to have similar implications for market structure and conduct we analyse this in the context of an infinite horizon price setting game learning is shown to not reduce the viability of market sharing collusion between a given number of firms whereas intra period increasing returns invariably does we subsequently develop a model where the number of active firms is determined endogenously under the assumption that the post entry game is collusive in this model learning has no effect on concentration while scale economies increase concentration

the impact of cyclical demand movements on collusive behavior recent work by rotemberg and saloner 1986 investigates the effect of the business cycle on optimal collusive pricing by specifying that demand is subject to i i d shocks an implication of the i i d assumption is that firms expectations on future demand are unrelated to the current level of demand we put forth a model that allows for both the level of current demand and firms expectations on future demand to change over time thus it captures two important properties of the business cycle our analysis reveals that while the gain to deviating from a collusive agreement is greatest during booms firms find it most difficult to collude during recessions as the forgone profits from inducing a price war are relatively low an implication of this effect for pricing behavior is that at the same level of demand price is lower when demand is declining than when demand is rising consistent with previous theoretical work we find that firms price countercyclically for a range of values for the discount factor however numerical simulations reveal a greater tendency for firms to price countercyclically during recessions than during booms