COMPETITION AND INCENTIVES WITH NONEXCLUSIVE CONTRACTS

We consider a common agency context where socially desired exclusive d ealing clauses cannot be enforced. Customers sequentially negotiate no nexclusive credit or insurance contracts from multiple risk-neutral fi rms in a market with free entry. Each contract is subject to moral haz ard arising from a common noncontractible effort decision. Outcomes of a class of Markov equilibria are characterized by a corresponding not ion of constrained efficiency. These may involve more rationing than i n a context of exclusive contracts, Increases in public provision or c ompetition can result in increased prices on the private market, owing to an induced reduction in customer effort.