Optimal Incentive Schemes with tiany Agents", Review of Economic Studies
- D. Mookherjee
The first theme of this paper is that direct (product) competition acts as a tournament between retailers when informational problems (or transaction costs) prevent the manufacturer from using contracts based on their relative performances. Anti-competitive restraints such as exclusive territories and resale price maintenance (which, we show, are not necessarily good substitutes) may or may not be privately desirable. The second theme of the paper is that privately desirable anti-competitive restraints may not be socially desirable. In our model, consumers prefer competition because its good insurance properties for the retailers do not force the manufacturer to raise the wholesale price; and because, for a given wholesale price, they prefer the competitive price adjustment to cost and demand shocks.