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Negotiation and Renegotiation of Optimal Financial Contracts under the Threat of Predation

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  • Snyder, Christopher M

Abstract

This paper examines the effect of renegotiation on the ability of financial contracts between a lender and entrant to deter an incumbent's predation. In the presence of renegotiation, it is more difficult for the entrant to obtain financing and more difficult for the contract to deter predation. Contracts successfully deter predation in some cases, however, even if renegotiation occurs at a stage with symmetric information between the entrant and lender. Giving the entrant (constrained by limited liability) stronger bargaining power vis-a-vis the lender improves the efficiency of the optimal contract but the results concerning renegotiation are unchanged. Copyright 1996 by Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Industrial Economics.

Volume (Year): 44 (1996)
Issue (Month): 3 (September)
Pages: 325-43

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Handle: RePEc:bla:jindec:v:44:y:1996:i:3:p:325-43

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-1821

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Cited by:
  1. Marquez, Robert, 2010. "Informed lending as a deterrent to predation," Finance Research Letters, Elsevier, vol. 7(4), pages 193-201, December.
  2. Levent Kockesen & Emanuele Gerratana, 2009. "Strategic Effects of Incomplete and Renegotiation-Proof Contracts," Koç University-TUSIAD Economic Research Forum Working Papers 0908, Koc University-TUSIAD Economic Research Forum.
  3. Michael H. Riordan, 2003. "How Do Capital Markets Influence Product Market Competition?," Review of Industrial Organization, Springer, vol. 23(3_4), pages 179-191, December.
  4. Gans, Joshua S. & King, Stephen P., 2002. "Exclusionary contracts and competition for large buyers," International Journal of Industrial Organization, Elsevier, vol. 20(9), pages 1363-1381, November.
  5. Emanuele Gerratana & Levent Koçkesen, 2013. "Commitment without Reputation: Renegotiation-Proof Contracts under Asymmetric Information," Koç University-TUSIAD Economic Research Forum Working Papers 1323, Koc University-TUSIAD Economic Research Forum.
  6. Arping, Stefan & Diaw, Khaled M., 2008. "Sunk costs, entry deterrence, and financial constraints," International Journal of Industrial Organization, Elsevier, vol. 26(2), pages 490-501, March.
  7. Fernandez-Ruiz, Jorge, 2004. "Predation due to adverse selection in financial markets," International Journal of Industrial Organization, Elsevier, vol. 22(5), pages 715-733, May.
  8. Dang, Viet Anh, 2010. "Optimal financial contracts with hidden effort, unobservable profits and endogenous costs of effort," The Quarterly Review of Economics and Finance, Elsevier, vol. 50(1), pages 75-89, February.
  9. Emanuele Gerratana & Levent Kockesen, 2012. "Renegotiation-Proof Third-Party Contracts under Asymmetric Information," Koç University-TUSIAD Economic Research Forum Working Papers 1208, Koc University-TUSIAD Economic Research Forum.
  10. Chan, Kwok Ho & Lu, Zhou & Fung, Ka Wai Terence, 2013. "Predation Due to Bargaining Power Difference in Financial Contracting," MPRA Paper 52873, University Library of Munich, Germany.
  11. Arve, Malin, 2013. "Procurement and Predation: Dynamic Sourcing from Financially Constrained Suppliers," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 441, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.

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