Optional fixed fees in multilateral vertical relations

CC de Fontenay, JS Gans

Economics Letters | ELSEVIER SCIENCE SA | Published : 2005


We examine vertical contracting in a perfect information environment. In contrast to McAfee and Schwartz [McAfee, R.P., Schwartz, M., 1994. Opportunism in multilateral vertical contracting: Nondiscrimination, exclusivity and uniformity. American Economic Review. vol. 84, pp. 210-230.] we demonstrate that outcomes are efficient if an upstream monopolist has the choice of requiring upfront fixed fee payments or making them 'optional'. © 2005 Elsevier B.V. All rights reserved.