On Competing Mechanism Games under Exclusive Competition

We study games in which several principals design mechanisms in the presence of privately informed agents. Competition is exclusive: each type of each agent can participate with at most one principal and meaningfully communicate only with him. Exclusive competition is at the centerstage of recent analyses of markets with private information. Economic models of exclusive competition restrict principals to use standard direct mechanisms, which induce truthful revelation of agents’ exogenous private information. This paper investigates the rationale for this restriction. We provide two results. First, we construct an economic example showing that direct mechanisms fail to completely characterize equilibrium outcomes even if we restrict to pure strategy equilibria. Second, we show that truth-telling strongly robust equilibrium outcomes survive against principals’ unilateral deviations toward arbitrary mechanisms.