OPPORTUNISM IN MULTILATERAL VERTICAL CONTRACTING - NONDISCRIMINATION,EXCLUSIVITY, AND UNIFORMITY

An input supplier selling to competing downstream firms would benefit from publicly committing at the outset to all contracts. Efficient com mitment, however, would require complete contracts. We study instead b ilateral contracting, without commitment regarding others' terms. Each firm then fears that the supplier might opportunistically renegotiate another's contract to increase bilateral profit at the firm's expense . We show that nondiscrimination clauses generally cannot curb such th ird-party opportunism, even with symmetric firms. To reassure firms, c rude forms of commitment may be adopted. This could explain the pervas iveness of exclusivity arrangements and the striking uniformity and in tertemporal rigidity of franchise contracts.