Break-up fees and bargaining power in sequential contracting
AbstractWhen a buyer negotiates in sequence with two potential sellers of a good, the outcome of each negotiation depends on all three players' bargaining powers. Assuming all parties are symmetrically informed, we find that the first seller's payoff is increasing in his own and the second seller's bargaining power. On the other hand, the second seller's payoff is decreasing in the first seller's bargaining power and, in some cases, also in his own bargaining power. We characterize when contracts will contain break-up fees. All results extend to the case of a seller negotiating in sequence with two buyers.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. 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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal International Journal of Industrial Organization.
Volume (Year): 28 (2010)
Issue (Month): 5 (September)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/505551
Rent shifting Penalty clauses Buyer-seller contracts Buyer power;
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.:
- Rubinstein, Ariel, 1982.
"Perfect Equilibrium in a Bargaining Model,"
Econometric Society, vol. 50(1), pages 97-109, January.
- Sutton, John, 1986. "Non-cooperative Bargaining Theory: An Introduction," Review of Economic Studies, Wiley Blackwell, vol. 53(5), pages 709-24, October.
- de Frutos, Maria-Angeles & Fabra, Natalia & Von der Fehr, Nils-Henrik M, 2008. "Investment Incentives and Auction Design in Electricity Markets," CEPR Discussion Papers 6626, C.E.P.R. Discussion Papers.
- Roger G. Noll, 2005. ""Buyer Power" and Economic Policy," Discussion Papers 04-008, Stanford Institute for Economic Policy Research.
- Marx, Leslie M. & Shaffer, Greg, 2007. "Rent shifting and the order of negotiations," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 1109-1125, October.
- Dobson, Paul W., 1994. "Multifirm unions and the incentive to adopt pattern bargaining in oligopoly," European Economic Review, Elsevier, vol. 38(1), pages 87-100, January.
- Robert Marshall & Antonio Merlo, 1996.
220, Federal Reserve Bank of Minneapolis.
- Merlo, Antonio & Wilson, Charles A, 1995. "A Stochastic Model of Sequential Bargaining with Complete Information," Econometrica, Econometric Society, vol. 63(2), pages 371-99, March.
- Officer, Micah S., 2003. "Termination fees in mergers and acquisitions," Journal of Financial Economics, Elsevier, vol. 69(3), pages 431-467, September.
- Perotti, E.C. & Spier, K.E., 1991.
"Capital Structure As A Bargaining Tool: The Role Of Leverage In Contract Renegociation,"
Harvard Institute of Economic Research Working Papers
1548, Harvard - Institute of Economic Research.
- Perotti, Enrico C & Spier, Kathryn E, 1993. "Capital Structure as a Bargaining Tool: The Role of Leverage in Contract Renegotiation," American Economic Review, American Economic Association, vol. 83(5), pages 1131-41, December.
- Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
- Pauly, Mark V, 1974. "Overinsurance and Public Provision of Insurance: The Roles of Moral Hazard and Adverse Selection," The Quarterly Journal of Economics, MIT Press, vol. 88(1), pages 44-62, February.
- Aghion, Philippe & Bolton, Patrick, 1987. "Contracts as a Barrier to Entry," American Economic Review, American Economic Association, vol. 77(3), pages 388-401, June.
- Roman Inderst & Christian Wey, 2005.
"Buyer Power and Supplier Incentives,"
Discussion Papers of DIW Berlin
464, DIW Berlin, German Institute for Economic Research.
- Inderst, Roman & Wey, Christian, 2002. "Buyer Power and Supplier Incentives," CEPR Discussion Papers 3547, C.E.P.R. Discussion Papers.
- Roman Inderst & Christian Wey, 2003. "Buyer Power and Supplier Incentives," CIG Working Papers SP II 2003-05, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
- Ilya Segal & Michael D. Whinston, 2000. "Exclusive Contracts and Protection of Investments," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 603-633, Winter.
- Charles J. Thomas, 2012. "An Alternating-Offers Model of Multilateral Negotiations," Working Papers 12-31, Chapman University, Economic Science Institute.
- Krasteva, Silvana & Yildirim, Huseyin, 2012. "On the role of confidentiality and deadlines in bilateral negotiations," Games and Economic Behavior, Elsevier, vol. 75(2), pages 714-730.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If references are entirely missing, you can add them using this form.