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

We study the design of market information in games in which several principals contract with several agents. We uncover a new dimension of mechanism design in this context, namely, the possibility for the principals to asymmetrically inform the agents of how their mechanisms operate, that is, respond to the agents’ messages. We document two effects of private disclosures. First, they raise the principals’ individual payoff guarantees, protecting them against their competitors’ threats. Second, they support equilibrium payoffs that cannot be supported in their absence, no matter how rich the message spaces are allowed to be. These results challenge the folk theorems à la Yamashita (2010) and the canonicity of the universal mechanisms of Epstein and Peters (1999), calling for a novel approach to competing-mechanism games. We propose one retaining key elements of classical mechanism-design theory and exploiting the strategic role of private disclosures to simplify the description of equilibrium communication.