A manufacturer designs a long-term contract with a retailer who is privately informed about demand, and they face future competition by an entrant. When demand is correlated across periods, information about past sales affects firms’ behavior after entry. We analyze the incentives of the incumbent players to share this information with the entrant and show that the manufacturer and the retailer have contrasting preferences: when the retailer wants to disclose information, the manufacturer does not, and vice versa. Although transparency harms consumers and reduces total welfare, incumbent players jointly benefit from selling information to the entrant.
The Value of Transparency in Dynamic Contracting with Entry
Gülen Karakoç;
2022-01-01
Abstract
A manufacturer designs a long-term contract with a retailer who is privately informed about demand, and they face future competition by an entrant. When demand is correlated across periods, information about past sales affects firms’ behavior after entry. We analyze the incentives of the incumbent players to share this information with the entrant and show that the manufacturer and the retailer have contrasting preferences: when the retailer wants to disclose information, the manufacturer does not, and vice versa. Although transparency harms consumers and reduces total welfare, incumbent players jointly benefit from selling information to the entrant.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.
