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Holdup, search, and inefficiency

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  • Shingo Ishiguro

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Abstract

This paper investigates the holdup problem in the dynamic search market where buyers and sellers search for their trading partners and specific investments are made after match but before trade. We show that frictionless (competitive) market imposes severe limitations on attainable efficiencies: Markets with small friction make the holdup problem more serious than those with large friction because in any equilibrium, whether stationary or non-stationary, investment must be dropped down to the minimum level and trade must be delayed with positive probability.

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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 44 (2010)
Issue (Month): 2 (August)
Pages: 307-338

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Handle: RePEc:spr:joecth:v:44:y:2010:i:2:p:307-338

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Related research

Keywords: Delay of trade; Holdup problem; Search; C72; C78;

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References

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Citations

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Cited by:
  1. Antonio Nicita & Massimiliano Vatiero, 2014. "Dixit versus Williamson: the ‘fundamental transformation’ reconsidered," European Journal of Law and Economics, Springer, vol. 37(3), pages 439-453, June.
  2. Antonio Nicita & Simone Sepe, 2012. "Incomplete contracts and competition: another look at fisher body/general motors?," European Journal of Law and Economics, Springer, vol. 34(3), pages 495-514, December.
  3. Antonio Nicita, 2013. "Managing Strategically Outside Options under Incomplete Contracts," Journal of Industry, Competition and Trade, Springer, vol. 13(3), pages 361-374, September.

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