Keeping the Agents in the Dark: Private Disclosures in Competing Mechanisms

Authors: A. Attar, E. Campioni, T. Mariotti, A. Pavan

Abstract

We study competing-mechanism games, in which several principals contract with several privately informed agents. We show that enabling principals to engage into private disclosures – whereby a principal sends to the agents contractible private signals about how her decision rule will respond to the agents' messages – can significantly affect the predictions of such games. Our first result is that equilibrium outcomes and payoffs of games without private disclosures need no longer be supported once private disclosures are allowed for. This challenges the robustness of the folk theorem of Yamashita (2010). Our second result is that allowing for private disclosures may generate equilibrium outcomes that cannot be supported in any game without private
disclosures, no matter how rich message spaces are. This challenges the canonicity of the universal mechanisms of Epstein and Peters (1999). These findings call for a novel approach to the analysis of competing-mechanism games.