Partial Secrecy in Vertical Contracting

This paper introduces a notion of partial secrecy in bilateral contracting games between one upstream firm and several competing downstream firms. The supplier’s offer quantities are subject to trembles, and each downstream firm observes a noisy signal about the offer received by its competitor before deciding whether to accept its offer. The ratio of the variance of the signals relative to the variance of the trembles captures the degree of contract secrecy. We find that a higher degree of secrecy implies a more competitive equilibrium outcome, both in a game with simultaneous offers and in a dynamic game with alternating offers similar to the one in Do and Mikl´os-Thal (2022, “Opportunism in Vertical Contracting: A Dynamic Perspective,” CEPR Discussion Paper No. DP16951)