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Article
Private contracting with externalities: Divide and conquer?
International Journal of Industrial Organization (EARIE Special Issue) (2016)
  • Jeanine Miklos-Thal
  • Greg Shaffer, University of Rochester
Abstract
This paper considers the efficacy of divide-and-conquer strategies in principal-agent games involving contracting with externalities. We find that whereas divide-and-conquer offers can arise in equilibrium under some conditions when the principal’s offers are publicly observable, they cannot arise in equilibrium when the principal’s offers are privately observable and the agents hold passive out-of-equilibrium beliefs. This insight applies to technology and platform adoption decisions with network effects, labor relations, settlement negotiations, and input licensing, among others.
Keywords
  • Principal-agent games,
  • divide and conquer strategies,
  • network effects,
  • two-sided markets,
  • union formation,
  • input licensing
Publication Date
2016
Citation Information
Jeanine Miklos-Thal and Greg Shaffer. "Private contracting with externalities: Divide and conquer?" International Journal of Industrial Organization (EARIE Special Issue) (2016)
Available at: http://works.bepress.com/jmiklosthal/18/