TY  - JOUR
AU  - Engel,Eduardo
AU  - Fischer,Ronald
AU  - Galetovic,Alexander
TI  - Competition in or for the Field: Which is Better?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8869
PY  - 2002
Y2  - April 2002
UR  - http://www.nber.org/papers/w8869
L1  - http://www.nber.org/papers/w8869.pdf
N1  - Author contact info:
Eduardo Engel
Yale University
Department of Economics
P.O. Box 208268
New Haven, CT  06520-8268
Tel: 203/432-5595
Fax: 203/432-5779
E-Mail: eduardo.engel@yale.edu

Ronald Fischer
Centro de Economia Aplicada (CEA)
Departamento de Ingenieria Industrial
Universidad de Chile
Republica 701 Santiago CHILE
E-Mail: rfischer@dii.uchile.cl
AB  - In many circumstances, a principal, who wants prices to be as low as possible, must contract with agents who would like to charge the monopoly price. This paper compares a Demsetz auction, which awards an exclusive contract to the agent bidding the lowest price (competition for the field) with having two agents provide the good under (imperfectly) competitive conditions (competition in the field). We obtain a simple sufficient condition showing unambiguously which option is best. The condition depends only on the shapes of the surplus function of the principal and the profit function of agents, and is independent of the particular duopoly game played ex post. We apply this condition to three canonical examples -- procurement, royalty contracts and dealerships -- and find that whenever marginal revenue for the final good is decreasing in the quantity sold, a Demsetz auction is best. Moreover, a planner who wants to maximize social surplus also prefers a Demsetz auction.
ER  -