Vertical Relations, Opportunism, and Welfare

Germain Gaudin

Research output: Contribution to journalJournal articleResearchpeer-review


This article revisits the opportunism problem faced by an upstream monopolist contracting with several retailers over secret agreements, when contracts are linear. We characterize the equilibrium under secret contracts and compare it to that under public contracts in a setting allowing for general forms of demand and retail competition. Market distortions are more severe under secret contracts if and only if retailers' instruments are strategic complements. We also investigate the effect of opportunism on firms' profits. Our results remain robust whether retailers hold passive or wary beliefs. We derive some implications for the antitrust analysis of information exchange between firms.
Original languageEnglish
JournalRAND Journal of Economics
Issue number2
Pages (from-to)342-358
Number of pages17
Publication statusPublished - Jun 2019
Externally publishedYes

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