American Institute of Mathematical Sciences

Advanced
  • Previous Article
    Conflict and segregation in networks: An experiment on the interplay between individual preferences and social influence
  • JDG Home
  • This Issue
  • Next Article
    Conformity-based behavior and the dynamics of price competition: A new rationale for fashion shifts
April  2016, 3(2): 169-189. doi: 10.3934/jdg.2016009

Asymmetric information in a bilateral monopoly

Apostolis Pavlou 1,

1. 

Charles River Associates (CRA), Avenue Louise 143, 1050, Brussels, Belgium

Received  January 2016 Revised  March 2016 Published  April 2016

This paper explores the role of the asymmetry in information in business to business (B2B) transactions. In a vertical setting with successive monopolies we present the equivalence that holds under complete information, that is, the profitability of the powerful party does not depend on its position in the industry and we investigate how potential information advantages affect this relationship. We demonstrate that under asymmetric information this equivalence breaks down and a firm that is positioned in the downstream sector reduces more effectively the information rents that it has to sacrifice for a truthful reporting, but the consumers remain indifferent. Under wholesale price contracts consumers prefer the less informed party to be at the downstream level since the excessive pricing distortion is less intense. Moreover, if second degree of price discrimination is not allowed then the principal prefers to be at the upstream level of production and consumers are better off in this case which comes in contrast to our previous results.
Keywords: vertical relations, two-part tariff, Asymmetric information, screening, wholesale price..
Mathematics Subject Classification: Primary: 91A28, 91A8.
Citation: Apostolis Pavlou. Asymmetric information in a bilateral monopoly. Journal of Dynamics and Games, 2016, 3 (2) : 169-189. doi: 10.3934/jdg.2016009
References:
[1]

A. Acconcias, R. Martina and S. Piccolo, Vertical restraints under asymmetric information: On the role of participation constraints, The Journal of Industrial Economics, 56 (2008), 379-401. doi: 10.1111/j.1467-6451.2008.00345.x.

[2]

D. Baron and R. Myerson, Regulating a monopolist with unknown costs, Econometrica, 50 (1982), 911-930. doi: 10.2307/1912769.

[3]

F. B. Blair and T. R. Lewis, Optimal retail contracts with asymmetric information and moral hazard, Rand Journal of Economics, 25 (1994), 284-296.

[4]

P. Bolton and M. Dewatripont, Contract Theory, MIT Press, 2005.

[5]

Z. Chen, Dominant retailers and the countervailing power hypothesis, Rand Journal of Economics, 34 (2003), 612-625.

[6]

Z. Chen, Buyer power: Economic theory and antitrust policy, Research in Law and Economics, 22 (2007), 17-40. doi: 10.1016/S0193-5895(06)22002-5.

[7]

C. J. Corbett, D. Zhou and C. S. Tang, Designing supply contracts: Contract type and information asymmetry, Management Science, 50 (2004), 550-559.

[8]

K. J. Crocker, Vertical integration and the strategic use of private information, The Bell Journal of Economics, 14 (1983), 236-248. doi: 10.2307/3003550.

[9]

E. Gal-Or, Vertical restraints with incomplete information, The Journal of Industrial Economics, 39 (1991), 503-516. doi: 10.2307/2098458.

[10]

F. Herweg and D. Muller, Price discrimination in input markets: Quantity discounts and private information, The Economic Journal, 124 (2014), 776-804. doi: 10.1111/ecoj.12061.

[11]

R. Inderst and N. Mazzarotto, Buyer power in distribution, chapter prepared for the ABA Antitrust Section Handbook, Issues in Competition Law and Policy (2006) (W.D. Collins, ed., in preparation).

[12]

B. Julien, Participation constraints in adverse selection models, Journal of Economic Theory, 93 (2000), 1-47. doi: 10.1006/jeth.1999.2641.

[13]

J. J. Laffont and D. Martimort, The Theory of Incentives: The Principal-Agent Model, Princeton University Press, 2002.

[14]

D. Martimort and S. Piccolo, Resale price maintenance under asymmetric information, International Journal of Industrial Organization, 25 (2007), 315-339. doi: 10.1016/j.ijindorg.2006.04.015.

[15]

F. Mathewson and R. Winter, An economic theory of vertical restraints, Rand Journal of Economics, 15 (1987), 27-38.

[16]

C. Milliou, E. Petrakis and N. Vettas, (In)efficient trading forms in competing vertical chains, mimeo, 2008.

[17]

M. Motta, Competition Policy: Theory and Practice, Cambridge University Press, 2004. doi: 10.1017/CBO9780511804038.

[18]

R. Myerson, Incentive Compatibility and the Bargaining Problem, Econometrica, 47 (1979), 61-73. doi: 10.2307/1912346.

[19]

P. Rey and J. Tirole, The logic of vertical restraints, American Economic Review, 76 (1986), 921-939.

[20]

B. Salanié, The Economics of Contracts: A Primer, MIT Press, 2005.

[21]

J. Spengler, Vertical integration and antitrust policy, Journal of Political Economy, 58 (1950), 347-352. doi: 10.1086/256964.

[22]

L. Telser, Why should manufacturers want fair trade?, Journal of Law and Economics, 3 (1960), 86-105.

[23]

J. Tirole, The Theory of Industrial Organization, MIT Press, 1988.

show all references

References:
[1]

A. Acconcias, R. Martina and S. Piccolo, Vertical restraints under asymmetric information: On the role of participation constraints, The Journal of Industrial Economics, 56 (2008), 379-401. doi: 10.1111/j.1467-6451.2008.00345.x.

[2]

D. Baron and R. Myerson, Regulating a monopolist with unknown costs, Econometrica, 50 (1982), 911-930. doi: 10.2307/1912769.

[3]

F. B. Blair and T. R. Lewis, Optimal retail contracts with asymmetric information and moral hazard, Rand Journal of Economics, 25 (1994), 284-296.

[4]

P. Bolton and M. Dewatripont, Contract Theory, MIT Press, 2005.

[5]

Z. Chen, Dominant retailers and the countervailing power hypothesis, Rand Journal of Economics, 34 (2003), 612-625.

[6]

Z. Chen, Buyer power: Economic theory and antitrust policy, Research in Law and Economics, 22 (2007), 17-40. doi: 10.1016/S0193-5895(06)22002-5.

[7]

C. J. Corbett, D. Zhou and C. S. Tang, Designing supply contracts: Contract type and information asymmetry, Management Science, 50 (2004), 550-559.

[8]

K. J. Crocker, Vertical integration and the strategic use of private information, The Bell Journal of Economics, 14 (1983), 236-248. doi: 10.2307/3003550.

[9]

E. Gal-Or, Vertical restraints with incomplete information, The Journal of Industrial Economics, 39 (1991), 503-516. doi: 10.2307/2098458.

[10]

F. Herweg and D. Muller, Price discrimination in input markets: Quantity discounts and private information, The Economic Journal, 124 (2014), 776-804. doi: 10.1111/ecoj.12061.

[11]

R. Inderst and N. Mazzarotto, Buyer power in distribution, chapter prepared for the ABA Antitrust Section Handbook, Issues in Competition Law and Policy (2006) (W.D. Collins, ed., in preparation).

[12]

B. Julien, Participation constraints in adverse selection models, Journal of Economic Theory, 93 (2000), 1-47. doi: 10.1006/jeth.1999.2641.

[13]

J. J. Laffont and D. Martimort, The Theory of Incentives: The Principal-Agent Model, Princeton University Press, 2002.

[14]

D. Martimort and S. Piccolo, Resale price maintenance under asymmetric information, International Journal of Industrial Organization, 25 (2007), 315-339. doi: 10.1016/j.ijindorg.2006.04.015.

[15]

F. Mathewson and R. Winter, An economic theory of vertical restraints, Rand Journal of Economics, 15 (1987), 27-38.

[16]

C. Milliou, E. Petrakis and N. Vettas, (In)efficient trading forms in competing vertical chains, mimeo, 2008.

[17]

M. Motta, Competition Policy: Theory and Practice, Cambridge University Press, 2004. doi: 10.1017/CBO9780511804038.

[18]

R. Myerson, Incentive Compatibility and the Bargaining Problem, Econometrica, 47 (1979), 61-73. doi: 10.2307/1912346.

[19]

P. Rey and J. Tirole, The logic of vertical restraints, American Economic Review, 76 (1986), 921-939.

[20]

B. Salanié, The Economics of Contracts: A Primer, MIT Press, 2005.

[21]

J. Spengler, Vertical integration and antitrust policy, Journal of Political Economy, 58 (1950), 347-352. doi: 10.1086/256964.

[22]

L. Telser, Why should manufacturers want fair trade?, Journal of Law and Economics, 3 (1960), 86-105.

[23]

J. Tirole, The Theory of Industrial Organization, MIT Press, 1988.

[1]

Shichen Zhang, Jianxiong Zhang, Jiang Shen, Wansheng Tang. A joint dynamic pricing and production model with asymmetric reference price effect. Journal of Industrial and Management Optimization, 2019, 15 (2) : 667-688. doi: 10.3934/jimo.2018064
[2]

Qing-you Yan, Juan-bo Li, Ju-liang Zhang. Licensing schemes in Stackelberg model under asymmetric information of product costs. Journal of Industrial and Management Optimization, 2007, 3 (4) : 763-774. doi: 10.3934/jimo.2007.3.763
[3]

Chun-xiang Guo, Dong Cai, Yu-yang Tan. Outsourcing contract design for the green transformation of manufacturing systems under asymmetric information. Journal of Industrial and Management Optimization, 2021  doi: 10.3934/jimo.2021158
[4]

Nicolas Rougerie. On two properties of the Fisher information. Kinetic and Related Models, 2021, 14 (1) : 77-88. doi: 10.3934/krm.2020049
[5]

Zhongbao Zhou, Yanfei Bai, Helu Xiao, Xu Chen. A non-zero-sum reinsurance-investment game with delay and asymmetric information. Journal of Industrial and Management Optimization, 2021, 17 (2) : 909-936. doi: 10.3934/jimo.2020004
[6]

Guoqiang Shi, Yong Wang, Dejian Xia, Yanfei Zhao. Information sharing when competing manufacturers adopt asymmetric channel in an e-tailer. Journal of Industrial and Management Optimization, 2021  doi: 10.3934/jimo.2021207
[7]

Mengting Fang, Yuanshi Wang, Mingshu Chen, Donald L. DeAngelis. Asymptotic population abundance of a two-patch system with asymmetric diffusion. Discrete and Continuous Dynamical Systems, 2020, 40 (6) : 3411-3425. doi: 10.3934/dcds.2020031
[8]

Yong-Jung Kim, Hyowon Seo, Changwook Yoon. Asymmetric dispersal and evolutional selection in two-patch system. Discrete and Continuous Dynamical Systems, 2020, 40 (6) : 3571-3593. doi: 10.3934/dcds.2020043
[9]

Feliz Minhós, A. I. Santos. Higher order two-point boundary value problems with asymmetric growth. Discrete and Continuous Dynamical Systems - S, 2008, 1 (1) : 127-137. doi: 10.3934/dcdss.2008.1.127
[10]

Kai Li, Yan Li, Jing Liu, Nenggui Zhao. Two-sided vertical competition considering product quality in a manufacturing-remanufacturing system. Journal of Industrial and Management Optimization, 2021  doi: 10.3934/jimo.2021187
[11]

Yang Yang, Kaiyong Wang, Jiajun Liu, Zhimin Zhang. Asymptotics for a bidimensional risk model with two geometric Lévy price processes. Journal of Industrial and Management Optimization, 2019, 15 (2) : 481-505. doi: 10.3934/jimo.2018053
[12]

Jing Feng, Yanfei Lan, Ruiqing Zhao. Impact of price cap regulation on supply chain contracting between two monopolists. Journal of Industrial and Management Optimization, 2017, 13 (1) : 349-373. doi: 10.3934/jimo.2016021
[13]

D. Motreanu, V. V. Motreanu, Nikolaos S. Papageorgiou. Two nontrivial solutions for periodic systems with indefinite linear part. Discrete and Continuous Dynamical Systems, 2007, 19 (1) : 197-210. doi: 10.3934/dcds.2007.19.197
[14]

Xiaomei Li, Renjing Liu, Zhongquan Hu, Jiamin Dong. Information sharing in two-tier supply chains considering cost reduction effort and information leakage. Journal of Industrial and Management Optimization, 2021  doi: 10.3934/jimo.2021200
[15]

Calin Iulian Martin, Adrián Rodríguez-Sanjurjo. Dispersion relations for steady periodic water waves of fixed mean-depth with two rotational layers. Discrete and Continuous Dynamical Systems, 2019, 39 (9) : 5149-5169. doi: 10.3934/dcds.2019209
[16]

Rüdiger Schultz. Two-stage stochastic programs: Integer variables, dominance relations and PDE constraints. Numerical Algebra, Control and Optimization, 2012, 2 (4) : 713-738. doi: 10.3934/naco.2012.2.713
[17]

Vladimir G. Romanov, Masahiro Yamamoto. Recovering two coefficients in an elliptic equation via phaseless information. Inverse Problems and Imaging, 2019, 13 (1) : 81-91. doi: 10.3934/ipi.2019005
[18]

Yuanshi Wang. Asymmetric diffusion in a two-patch mutualism system characterizing exchange of resource for resource. Discrete and Continuous Dynamical Systems - B, 2021, 26 (2) : 963-985. doi: 10.3934/dcdsb.2020149
[19]

Sankar Kumar Roy, Magfura Pervin, Gerhard Wilhelm Weber. A two-warehouse probabilistic model with price discount on backorders under two levels of trade-credit policy. Journal of Industrial and Management Optimization, 2020, 16 (2) : 553-578. doi: 10.3934/jimo.2018167
[20]

N. Romero, A. Rovella, F. Vilamajó. Dynamics of vertical delay endomorphisms. Discrete and Continuous Dynamical Systems - B, 2003, 3 (3) : 409-422. doi: 10.3934/dcdsb.2003.3.409

 Impact Factor: 

Tools

Metrics

  • PDF downloads (256)
  • HTML views (0)
  • Cited by (0)

Other articles
by authors

[Back to Top]

Copyright © 2022 American Institute of Mathematical Sciences | Privacy Policy