Discussion paper

DP16753 Price Authority and Information Sharing with Competing Principals

We characterize the degree of price discretion that competing principals award their agents in a
framework where the latter are informed about demand, while the former learn it probabilistically
and may exchange this information on a reciprocal basis. Partial delegation equilibria exist with and
without information sharing and feature binding price caps (list prices) that prevent agents to pass on
their distribution costs to consumers. Yet, these equilibria are more likely to occur with information
sharing than without. Moreover, while principals exchange information when products are sufficiently
differentiated and downstream distribution costs are neither too high nor too low, expected prices are
unambiguously lower with than without information sharing. Finally, we also argue why, and how, an
information-sharing agreement can be implemented by a simple communication protocol according to
which principals disclose their price intentions.

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Citation

Neven, D, S Piccolo and E Andreu (eds) (2021), “DP16753 Price Authority and Information Sharing with Competing Principals”, CEPR Press Discussion Paper No. 16753. https://new.cepr.org/publications/dp16753