This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

On the Right-of-First-Refusal

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Sushil Bikhchandani (UCLA)
Steven A. Lippman (UCLA)
Reade Ryan (Amaranth, LLC)

Additional information is available for the following registered author(s):

Abstract

When the seller of an asset grants a right-of-first-refusal to a buyer, this special buyer has the opportunity to purchase the asset at the best price the seller can obtain from the other potential buyers. We show that the right-of-first-refusal is inefficient, and it benefits the special buyer at the expense of the seller and other buyers. In a private values model, the benefit the special buyer obtains via the right-of-first-refusal equals the cost to the seller. When buyers' valuations are correlated, the presence of a special buyer exacerbates the winner's curse on regular buyers. Consequently, the special buyer's expected gain from the right-of-first-refusal is often less than the expected loss to the seller. Thus, our analysis suggests that the seller should exercise considerable caution prior to deciding whether to grant this right to a buyer.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.bepress.com/cgi/viewcontent.cgi?article=1194&context=bejte
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Article provided by Berkeley Electronic Press in its journal The B.E. Journal of Theoretical Economics.

Volume (Year): advances.5 (2005)
Issue (Month): 1 ()
Pages:
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:bpj:bejtec:v:advances.5:y:2005:i:1:n:4

Contact details of provider:
Web page: http://www.bepress.com/bejte

For technical questions regarding this item, or to correct its listing, contact: (Avi Warner).

Related research
Keywords: pricing; contracts; right-of-first-refusal; meet-the-competition clause;

Other versions of this item:

Find related papers by JEL classification:
D4 - Microeconomics - - Market Structure and Pricing
L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Milgrom, Paul R, 1981. "Rational Expectations, Information Acquisition, and Competitive Bidding," Econometrica, Econometric Society, vol. 49(4), pages 921-43, June. [Downloadable!] (restricted)
  2. Karlin, Samuel & Rinott, Yosef, 1980. "Classes of orderings of measures and related correlation inequalities. I. Multivariate totally positive distributions," Journal of Multivariate Analysis, Elsevier, vol. 10(4), pages 467-498, December. [Downloadable!] (restricted)
  3. Aaron Edlin, 1995. "Do Guaranteed-Low-Price Policies Guarantee High Prices, and Can Antitrust Rise to the Challenge," Berkeley Olin Program in Law & Economics, Working Paper Series 1153, Berkeley Olin Program in Law & Economics. [Downloadable!]
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Leandro Arozamena & Federico Weinschelbaum, 2006. "A note on the suboptimality of right-of-first-refusal clauses," Economics Bulletin, Economics Bulletin, vol. 4(24), pages 1-5. [Downloadable!]
  2. Brit Grosskopf & Alvin E. Roth, 2006. "If you are offered the Right of First Refusal, Should you accept? An Investigation of Contract Design," Levine's Bibliography 122247000000001017, UCLA Department of Economics. [Downloadable!]
    Other versions:
  3. repec:bep:thecon:v:7:y:2007:i:1:p:1332-1332 is not listed on IDEAS
  4. Leandro Arozamena & erico Weinschelbaum, 2008. "Simultaneous vs. Sequential Price Competition with Incomplete Information," Department of Economics Working Papers 2008_3, Universidad Torcuato Di Tella. [Downloadable!]
    Other versions:
Statistics
Access and download statistics

Did you know? IDEAS is not the only service displaying RePEc data. Choose on RePEc which service fits your needs best.

This page was last updated on 2009-12-24.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.