Contracting with Endogenous Entry
| Autor: | Salvatore Piccolo, Marco Pagnozzi |
|---|---|
| Přispěvatelé: | Pagnozzi, Marco, Salvatore, Piccolo |
| Jazyk: | angličtina |
| Rok vydání: | 2017 |
| Předmět: |
Economics and Econometrics
Vertical Contracting Entry Asymmetric Information Expected cost Ex-ante Strategy and Management media_common.quotation_subject Production cost 05 social sciences Economics Econometrics and Finance (miscellaneous) Pareto principle Microeconomics Information asymmetry 0502 economics and business Industrial relations Economics 050207 economics Settore SECS-P/01 - Economia Politica Welfare Barriers to entry 050205 econometrics Intuition media_common |
| Popis: | We analyze entry in markets where a principal contracts with a privately informed agent. Before learning his production cost, the agent knows his probability of having a low cost --- his ex ante "type" --- and decides whether to pay an entry fee to contract with the principal. There are two cut-off equilibria that determine the possible types of an agent who actually enters the market, and neither equilibrium can be discarded by standard selection criteria. Contrasting with standard intuition, in the equilibrium with the highest cut-off an increase in the entry fee reduces the marginal type of the agent who enters, thus increasing entry and the expected cost of an entrant. This equilibrium is selected by a criterion based on "robustness to equilibrium risk," even though the equilibrium with the lowest cut-off is Pareto dominant for the agent. Public policies that increase entry barriers may be welfare improving. |
| Databáze: | OpenAIRE |
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