Exclusive Dealing Contracts in a Successive Duopoly with Side Payments

For two districts or countries that try to internalize externalities, I analyze a bargaining game under private information. I derive conditions for when it is efficient with uniform policies across regions—with and without side payments—and when it is efficient to prohibit side payments in the negotiations. While policy differentiation and side payments allow the policy to better reflect local conditions, they create conflicts between the regions and, thus, delay. The results also describe when political centralization outperforms decentralized cooperation, and they provide a theoretical foundation for the controversial “uniformity assumption” traditionally used by the fiscal federalism literature. (JEL C78, D72, D82, H77)

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THE FIRM AS A NEXUS OF STRATEGIES

International Game Theory Review ◽

10.1142/s0219198904000344 ◽

2004 ◽

Vol 06 (04) ◽

pp. 525-554

Author(s):

GREGORY K. DOW

Keyword(s):

Repeated Game ◽

Standard View ◽

Team Members ◽

Technology Firms ◽

Outside Options ◽

Side Payments ◽

Input Demand ◽

General Production ◽

Production Technologies ◽

Incentive Constraint

This paper replaces the standard view of the firm as a nexus of contracts with a repeated game framework where input contributions and side payments are self-enforced. General production technologies and flexible transfers among team members are allowed. When an incentive constraint binds, input demand and output supply are influenced by the discount factor, the probability of exogenous team dissolution, and the aggregate value of outside options. When this incentive constraint does not bind, the firm maximizes profit in the usual way. I discuss examples involving the Cobb-Douglas technology, firms with a single residual claimant, and partnerships.

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Values of games without side payments

International Journal of Game Theory ◽

10.1007/bf01753436 ◽

1971 ◽

Vol 1 (1) ◽

pp. 95-109 ◽

Cited By ~ 19

Author(s):

G. Owen

Keyword(s):

Side Payments

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Le contrat de concession commerciale et le libre marché

Les Cahiers de droit ◽

10.7202/042411ar ◽

2005 ◽

Vol 21 (3-4) ◽

pp. 787-823

Author(s):

Claude Samson

Keyword(s):

Free Market ◽

Common Law ◽

Economic Power ◽

Exclusive Dealing ◽

Public Authorities ◽

Free Competition ◽

Market Organization ◽

Characteristic Features ◽

Market Restriction ◽

The Impact

This paper deals with the exclusive sale contract or solus agreement. Its first part identifies some characteristic features of this type of agreement, which quite often is not only aimed at regulating the exercise of trade, but also serves as a technique of market organization and economic power concentration. The impact of the increasing currency of such commercial practices on the free market justifies consideration of the various forms of control that can be exercised by public authorities in order to preserve free competition. Control can be achieved through the judiciary applying concepts such as public order in civil law or public policy at common law. However, in view of the courts' reluctance to interfere with such instances of private economic power and their indifference towards the economic inequities inherent in such agreements for the distributor, legislative intervention has become necessary to protect the free market. Thus the Combines Investigation Act was amended in 1976 to allow regulation of commercial practices such as refusal to deal, consignment selling, exclusive dealing, market restriction and tied selling.

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