Competing Vertical Structures: Precommitment and Renegotiation

Abstract

Competing Vertical Structures: Preconmitment and Renegotiation.We consider a mode!where two agents play a (normal form) game on behalf of two principals.We analyze the existence of precommitment effects through public announcement of contract, in a mode!where agency contracts, designed under incomplete information between principal and agent, can be secretly renegotiated.We show that the existence of precommitment effects depends both on the strategic complementarity of the agents' actions and on the direct effect of the opponent's action on each principal's welfare.In our mode!, the possibility of renegotiation is crucial for the existence of precommitment effects.Applications to the field of Industrial Organization are discussed.

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