Informational Alliances

Abstract

An informational alliance involves the consolidation of the private information of independent suppliers in anticipation of a contracting opportunity with a principal. An informational alliance is an intermediate form of organization between the consolidation of information as in a merger and the suppliers remaining separate entities. It can Pareto dominate a merger, independent contracting, and hierarchical contracting, so a principal can benefit by allowing suppliers to organize the supply network. An informational alliance forms at the nexus of internally-verifiable private information. The principal's contracting problem then involves a participation condition with a reservation value that is a function of type.