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Haggling for Rents, Relational Contracts, and the Theory of the Firm

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  • Oliver Gürtler

Abstract

I analyze how ownership can be structured to minimize the haggling costs due to contractual incompleteness. I model haggling as a contest in which integration gives the integrating party a relative advantage over the integrated party. In a one-period model, this implies that the contest will become more uneven and social waste reduced, making integration the optimal strategy. In the infinitely repeated version of the model, the parties can also enter a relational contract under which each party promises not to engage in haggling. I show that such a contract is less stable under integration, since the integrating party gains much more from deviating than does any party under non-integration.

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  • Oliver Gürtler, 2010. "Haggling for Rents, Relational Contracts, and the Theory of the Firm," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 62(4), pages 359-377, October.
    • Handle: RePEc:sbr:abstra:v:62:y:2010:i:4:p:359-377
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    1. Agnieszka Zakrzewska-Bielawska, 2019. "Recognition of relational strategy content: insight from the managers’ view," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 9(2), pages 193-211, June.

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    More about this item

    Keywords

    Integration; Non-Integration; Relational Contract; Rent Seeking;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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