Essays on vertical relationships
This dissertation consists of three essays in microeconomics and industrial organization. These essays analyze models of vertical relationships with asymmetric information when contracting is incomplete. The first essay analyzes a dynamic model with one upstream and one downstream firm. The downstream firm has superior final demand information, and the quantity of upstream output purchased by this firm may act as a signal of its information. The upstream firm is unable to commit to its future wholesale price. This incomplete contracting assumption implies that this price is higher if it learns that demand is "high." This gives the downstream firm an incentive to conceal information when demand is high. The sequential equilibria in the model are developed. A pooling equilibrium may satisfy a refinement of sequential equilibrium, and this refinement is argued to be an appropriate refinement to consider in the model. Thus, the upstream firm may not learn the information. It is also found that the upstream firm can affect the incentive to reveal information by altering its behavior. For example, it can encourage revelation by lowering its initial wholesale price. The second essay considers a model with two downstream firms. Their information is identical, and they are price competitors. Consumers must search for retail price information, so retail price distributions may result. The output quantities purchased by the downstream firms may jointly signal the demand information. It is found that sequential equilibria need not be fully revealing when the upstream firm may change its price over time. In particular, a non-revealing equilibrium is found to satisfy a refinement that rules out non-separating behavior in the model with one downstream firm. Thus, the upstream firm may not learn the information, even though it may learn from several independent sources. The third essay considers vertical integration with incomplete contracting when there is both adverse selection and moral hazard. It is found that second best allocations may not be implemented in all settings. Ownership of the integrated firm affects incentives to engage in productive effort and to reveal information.
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|Authors:||Kahwaty, Henry John|
|Type of publication:||Other|
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