Bargaining, Mergers, and Technology Choice in Bilaterally Oligopolistic Industries by Roman Inderst and Christian WeyThis paper provides a conceptual framework of multilateral bargaining in a bilaterally oligopolistic industry to analyze the motivations for horizontal mergers, technology choice, and their welfare implications. We first analyze the implication of market structure for the distribution of industry profits. We find that retailer mergers are more likely (less likely) if suppliers have increasing (decreasing) unit costs, while supplier mergers are more likely (less likely) if goods are substitutes (complements). In a second step we explore how market structure affects suppliers' technology choice, which reflects a trade-off between inframarginal and marginal production costs. We find that suppliers focus more on marginal cost reduction if (i) retailers are integrated and (ii) suppliers are non-integrated.In a final step we consider the whole picture where both market structure and (subsequent) technology choice are endogenous. Analyzing the equilibrium market structure, we find cases where retailers become integrated to induce suppliers to choose a more efficient technology, even though integration weakens their bargaining position. In this case the merger benefits all parties, i.e., suppliers, retailers, and even consumers. However, we also show that the equilibrium market structure does often not maximize welfare. Keywords

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In markets for retail financial products and health services, consumers often rely on the advice of intermediaries to decide which specialized offering best fits their needs. Product providers, in turn, compete to influence the intermediaries' advice through hidden kickbacks or disclosed commissions. Motivated by the controversial role of these widespread practices, we formulate a model to analyze competition through commissions from a positive and normative standpoint. The model highlights the role of commissions in making the advisor responsive to supply-side incentives. We characterize situations when commonly adopted policies such as mandatory disclosure and caps on commissions have unintended welfare consequences. (JEL D21, D82, D83, G21, L15, L25)

This paper analyzes the implications of the inherent conflict between two tasks performed by direct marketing agents: prospecting for customers and advising on the product's "suitability" for the specific needs of customers. When structuring salesforce compensation, firms trade off the expected losses from "misselling" unsuitable products with the agency costs of providing marketing incentives. We characterize how the equilibrium amount of misselling (and thus the scope of policy intervention) depends on features of the agency problem including: the internal organization of a firm's sales process, the transparency of its commission structure, and the steepness of its agents' sales incentives. (JEL M31, M37, M52)

Buyer Power and Supplier Incentives by Roman Inderst and Christian Wey This paper investigates how the formation of larger buyers affects a supplier's profits and, by doing so, his incentives to undertake non-contractible activities. We first identify two channels of buyer power, which allows larger buyers to obtain discounts. We subsequently examine the effects of buyer power on the supplier's incentives and on social welfare. Contrary to some informal claims in the policy debate on buyer power, we find that the exercise of buyer powereven though reducing supplier's profits-may often increase a supplier's incentive to undertake welfare enhancing activities.

This paper investigates the determinants of the compensation structure for brokers who advise customers regarding the suitability of …nancial products. Our model explains why brokers are commonly compensated indirectly through contingent commissions paid by product providers. While biasing the broker's recommendation, commissions can enhance e¢ ciency by improving the broker's incentives to acquire information. When customers are naive about the broker's con ‡ict of interest, product providers exploit the customers' incorrect perceptions by increasing product prices and commissions, while charging no direct fee for advice. We analyze the e¤ectiveness of various consumer …nancial protection regulations depending on the rationality of customers.

This article analyses the impact of retail mergers on product variety. We show that, following a merger, a retailer may want to enhance its buyer power by committing to a 'single-sourcing' purchasing strategy. Anticipating further concentration in the retail industry, suppliers will strategically choose to produce less differentiated products, which further reduces product variety. If negotiations are efficient, the overall loss in product variety may reduce consumer surplus and total welfare. With linear tariffs, however, there may be a countervailing effect as the more powerful retailer passes on lower prices to final consumers. Copyright 2007 The Author(s). Journal compilation Royal Economic Society 2007.

We study a model of "information-based entrenchment" in which the CEO has private information that the board needs to make an efficient replacement decision. Eliciting the CEO's private information is costly, as it implies that the board must pay the CEO both higher severance pay and higher on-the-job pay. While higher CEO pay is associated with higher turnover in our model, there is too little turnover in equilibrium. Our model makes novel empirical predictions relating CEO turnover, severance pay, and on-the-job pay to firm-level attributes such as size, corporate governance, and the quality of the firm's accounting system. * We thank