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Please Hold me Up: Why Firms Grant Exclusive Dealing Contracts

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Author Info
David de Meza
Marianno Selvaggi ()

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Abstract

Why do irreplaceable firms with a choice of suppliers or customers deliberately expose themselves to the threat of hold up by contracting ex ante to deal with only one of them? Our explanation revolves around the multiple equilibria intrinsic to situations of unverifiable investment and many traders. Exclusive dealing eliminates inefficient equilibria in which too many firms invest too little. The enhanced ex post bargaining power of the chosen firm is beneficial for incentives whilst the distributional impact is more than offset in the ex ante negotiations over which this firm obtains the access privilege.

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File URL: http://www.bris.ac.uk/Depts/CMPO/workingpapers/wp66.pdf
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Publisher Info
Paper provided by Department of Economics, University of Bristol, UK in its series The Centre for Market and Public Organisation with number 03/066.

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Length: 30 pages
Date of creation: Apr 2003
Date of revision:
Handle: RePEc:bri:cmpowp:03/066

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Related research
Keywords: exclusive dealing; hold-up; renegotiation;

Other versions of this item:

Find related papers by JEL classification:
C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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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. Freeland, Robert F, 2000. "Creating Holdup through Vertical Integration: Fisher Body Revisited," Journal of Law & Economics, University of Chicago Press, vol. 43(1), pages 33-66, April.
  2. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law & Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
  3. Raghuram G. Rajan & Luigi Zingales, 1998. "Power In A Theory Of The Firm," The Quarterly Journal of Economics, MIT Press, vol. 113(2), pages 387-432, May. [Downloadable!] (restricted)
    Other versions:
  4. Aghion, Philippe & Bolton, Patrick, 1987. "Contracts as a Barrier to Entry," American Economic Review, American Economic Association, vol. 77(3), pages 388-401, June.
  5. Hart, O. & Tirole, J., 1990. "Vertical Integration And Market Foreclosure," Working papers 548, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. McAfee, R Preston & Schwartz, Marius, 1994. "Opportunism in Multilateral Vertical Contracting: Nondiscrimination, Exclusivity, and Uniformity," American Economic Review, American Economic Association, vol. 84(1), pages 210-30, March. [Downloadable!] (restricted)
  7. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January. [Downloadable!] (restricted)
  8. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-58, December. [Downloadable!] (restricted)
    Other versions:
  9. Masten, Scott E & Snyder, Edward A, 1993. "United States versus United Shoe Machinery Corporation: On the Merits," Journal of Law & Economics, University of Chicago Press, vol. 36(1), pages 33-70, April.
  10. Bolton, Patrick & Whinston, Michael D, 1993. "Incomplete Contracts, Vertical Integration, and Supply Assurance," Review of Economic Studies, Blackwell Publishing, vol. 60(1), pages 121-48, January. [Downloadable!] (restricted)
  11. Marvel, Howard P, 1982. "Exclusive Dealing," Journal of Law & Economics, University of Chicago Press, vol. 25(1), pages 1-25, April.
  12. Holmstrom, Bengt & Roberts, John, 1998. "The Boundaries of the Firm Revisited," Journal of Economic Perspectives, American Economic Association, vol. 12(4), pages 73-94, Fall. [Downloadable!] (restricted)
  13. B. Douglas Bernheim & Michael D. Whinston, 1998. "Exclusive Dealing," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 64-103, February. [Downloadable!] (restricted)
    Other versions:
  14. Chiu, Y Stephen, 1998. "Noncooperative Bargaining, Hostages, and Optimal Asset Ownership," American Economic Review, American Economic Association, vol. 88(4), pages 882-901, September. [Downloadable!] (restricted)
  15. David De Meza & Ben Lockwood, 1998. "Does Asset Ownership Always Motivate Managers? Outside Options And The Property Rights Theory Of The Firm," The Quarterly Journal of Economics, MIT Press, vol. 113(2), pages 361-386, May. [Downloadable!] (restricted)
  16. Coase, R H, 2000. "The Acquisition of Fisher Body by General Motors," Journal of Law & Economics, University of Chicago Press, vol. 43(1), pages 15-31, April.
  17. 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.
  18. Klein, Benjamin, 1988. "Vertical Integration as Organizational Ownership: The Fisher Body-General Motors Relationship Revisited," Journal of Law, Economics and Organization, Oxford University Press, vol. 4(1), pages 199-213, Spring.
  19. Casadesus-Masanell, Ramon & Spulber, Daniel F, 2000. "The Fable of Fisher Body," Journal of Law & Economics, University of Chicago Press, vol. 43(1), pages 67-104, April.
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. David de Meza & Mariano Selvaggi, 2004. "Exclusive Contracts Foster Relationship-Specific Investment," The Centre for Market and Public Organisation 04/105, Department of Economics, University of Bristol, UK. [Downloadable!]
  2. Chrysovalantou Milliou, 2004. "Exclusive Dealing And Compatibility Of Investments," Economics Working Papers we044919, Universidad Carlos III, Departamento de Economía. [Downloadable!]
  3. Matthew Ellman, 2004. "Specificity Revisited: The Role of Cross-Investments," Economics Working Papers 799, Department of Economics and Business, Universitat Pompeu Fabra, revised Jan 2005. [Downloadable!]
    Other versions:
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