Screening in Vertical Oligopolies
A finite number of vertically differentiated firms simultaneously compete for and screen a continuum of agents with private information about their ability or their willingness to pay for quality. Firms compete through menus of wage-effort or transfer-quality pairs. In equilibrium, higher firms serve higher segments of types. In each segment, the allocation is distorted downward from the efficient level on types below a threshold, but upwards above. The equilibrium approaches the competitive limit as the number of firms grows large. The welfare effects of private information may be reversed from the monopoly setting. While payoffs in this game are neither quasi-concave nor continuous, we show that if firms are sufficiently differentiated, then any strategy profile that satisfies a simple set of necessary conditions is an equilibrium, and we show that an equilibrium exists.
Jeroen Swinkels, Hector Chade
Swinkels, Jeroen, and Hector Chade. 2019. Screening in Vertical Oligopolies.