Private contracting with externalities: Divide and conquer?

This paper considers the efficacy of divide-and-conquer strategies in principal-agent games involving contracting with externalities. We find that whereas divide-and-conquer offers can arise in equilibrium under some conditions when the principal's offers are publicly observable, they cannot arise in equilibrium when the principal's offers are privately observable and the agents hold passive out-of-equilibrium beliefs. This insight applies to technology and platform adoption decisions with network effects, labor relations, settlement negotiations, and input licensing, among others. (C) 2016 Elsevier B.V. All rights reserved.