COMPETING VERTICAL STRUCTURES - PRECOMMITMENT AND RENEGOTIATION

We consider a model where two agents, privately informed about their o wn characteristics, play a (normal form) game on behalf of two uninfor med principals. We analyze the existence of precommitment effects thro ugh public announcements of contracts, in a model where agency contrac ts, designed ex-ante, can always be secretly renegotiated, at the ex-a nte and interim stages. We show that the existence of precommitment ef fects depends both on the strategic complementarity of the agents' act ions and on the direct effect of the opponents' actions on each princi pal's welfare. In our model, the possibility of renegotiation is cruci al for the existence of precommitment effects. The results are introdu ced through an example of Cournot and Bertrand competition between fir ms, viewed as vertical structures.