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Opportunism and menus of two-part tariffs

Publication ,  Journal Article
Marx, LM; Shaffer, G
Published in: International Journal of Industrial Organization
December 1, 2004

We show that a menu of two-part tariffs can solve the opportunism problem identified by McAfee and Schwartz (1994) [McAfee, R.P., Schwartz, M., 1994. Opportunism in multilateral vertical contracting: nondiscrimination, exclusivity, and uniformity. American Economic Review, 84 210-230] in vertical games with sequential contracting, provided the sunk costs incurred by the first firm to invest are not too large. If the seller were to engage in opportunism with a second firm in an attempt to shift rents from the first firm, the first firm could mitigate the dissipation of its rents by choosing from its menu of contract options the tariff with the higher marginal price and lower fixed fee. The prospect of the first firm's choosing the 'wrong' two-part tariff in the event of opportunism is, in some environments, sufficient to make opportunism unprofitable for the seller. © 2005 Elsevier B.V. All rights reserved.

Duke Scholars

Published In

International Journal of Industrial Organization

DOI

ISSN

0167-7187

Publication Date

December 1, 2004

Volume

22

Issue

10

Start / End Page

1399 / 1414

Related Subject Headings

  • Economics
  • 3803 Economic theory
  • 3801 Applied economics
  • 3507 Strategy, management and organisational behaviour
  • 1403 Econometrics
  • 1402 Applied Economics
  • 1401 Economic Theory
 

Citation

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Marx, L. M., & Shaffer, G. (2004). Opportunism and menus of two-part tariffs. International Journal of Industrial Organization, 22(10), 1399–1414. https://doi.org/10.1016/j.ijindorg.2003.11.003
Marx, L. M., and G. Shaffer. “Opportunism and menus of two-part tariffs.” International Journal of Industrial Organization 22, no. 10 (December 1, 2004): 1399–1414. https://doi.org/10.1016/j.ijindorg.2003.11.003.
Marx LM, Shaffer G. Opportunism and menus of two-part tariffs. International Journal of Industrial Organization. 2004 Dec 1;22(10):1399–414.
Marx, L. M., and G. Shaffer. “Opportunism and menus of two-part tariffs.” International Journal of Industrial Organization, vol. 22, no. 10, Dec. 2004, pp. 1399–414. Scopus, doi:10.1016/j.ijindorg.2003.11.003.
Marx LM, Shaffer G. Opportunism and menus of two-part tariffs. International Journal of Industrial Organization. 2004 Dec 1;22(10):1399–1414.
Journal cover image

Published In

International Journal of Industrial Organization

DOI

ISSN

0167-7187

Publication Date

December 1, 2004

Volume

22

Issue

10

Start / End Page

1399 / 1414

Related Subject Headings

  • Economics
  • 3803 Economic theory
  • 3801 Applied economics
  • 3507 Strategy, management and organisational behaviour
  • 1403 Econometrics
  • 1402 Applied Economics
  • 1401 Economic Theory