DP16753 Price Authority and Information Sharing with Competing Principals

Author(s): Enrique Andreu, Damien J Neven, Salvatore Piccolo
Publication Date: November 2021
Keyword(s): Competing Principals, Delegates Sales, discretion, information sharing, List Prices
JEL(s): L42, L50, L81
Programme Areas: Industrial Organization, Organizational Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16753

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.