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A Rent Extraction Theory of Right of First Refusal

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Author Info
Albert Choi
Abstract

When a seller gives a buyer a right of first refusal, although it reduces the competing buyers' profits and creates an inefficiency, it always increases the joint profit of the seller and the right holder. Right of first refusal with a consideration (e.g., a payment from the right holder to the seller) allows the seller and the right holder to extract more surplus from the competing buyers

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Paper provided by Econometric Society in its series Econometric Society 2004 Far Eastern Meetings with number 759.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:feam04:759

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Related research
Keywords: Right of first refusal; bargaining; auctions;

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Find related papers by JEL classification:
D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
K22 - Law and Economics - - Regulation and Business Law - - - Corporation and Securities Law

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  1. Kenneth Hendricks & Robert Porter, 1989. "Collusion in Auctions," Discussion Papers 817, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
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  2. Klemperer, P., 1999. "Auction Theory: a Guide to the Literature," Economics Papers 1999-w12, Economics Group, Nuffield College, University of Oxford.
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  3. Mailath, George J. & Zemsky, Peter, 1991. "Collusion in second price auctions with heterogeneous bidders," Games and Economic Behavior, Elsevier, vol. 3(4), pages 467-486, November. [Downloadable!] (restricted)
  4. Levin, Dan & Smith, James L, 1996. "Optimal Reservation Prices in Auctions," Economic Journal, Royal Economic Society, vol. 106(438), pages 1271-83, September. [Downloadable!] (restricted)
  5. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September. [Downloadable!] (restricted)
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  6. McAfee, R Preston & McMillan, John, 1987. "Auctions and Bidding," Journal of Economic Literature, American Economic Association, vol. 25(2), pages 699-738, June. [Downloadable!] (restricted)
  7. Graham, Daniel A & Marshall, Robert C, 1987. "Collusive Bidder Behavior at Single-Object Second-Price and English Auctions," Journal of Political Economy, University of Chicago Press, vol. 95(6), pages 1217-39, December. [Downloadable!] (restricted)
  8. Aghion, Philippe & Bolton, Patrick, 1987. "Contracts as a Barrier to Entry," American Economic Review, American Economic Association, vol. 77(3), pages 388-401, June.
  9. Smith, James L, 1981. "Non-Aggressive Bidding Behavior and the "Winner's Curse."," Economic Inquiry, Oxford University Press, vol. 19(3), pages 380-88, July.
  10. Maskin, Eric S & Riley, Joan G, 1985. "Auction Theory with Private Values," American Economic Review, American Economic Association, vol. 75(2), pages 150-55, May. [Downloadable!] (restricted)
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  11. Cremer, Jacques & McLean, Richard P, 1988. "Full Extraction of the Surplus in Bayesian and Dominant Strategy Auctions," Econometrica, Econometric Society, vol. 56(6), pages 1247-57, November. [Downloadable!] (restricted)
  12. Riley, John G & Samuelson, William F, 1981. "Optimal Auctions," American Economic Review, American Economic Association, vol. 71(3), pages 381-92, June. [Downloadable!] (restricted)
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  13. Marc S. Robinson, 1985. "Collusion and the Choice of Auction," RAND Journal of Economics, The RAND Corporation, vol. 16(1), pages 141-145, Spring. [Downloadable!] (restricted)
  14. McAfee, R Preston & McMillan, John, 1992. "Bidding Rings," American Economic Review, American Economic Association, vol. 82(3), pages 579-99, June. [Downloadable!] (restricted)
    Other versions:
    • McAfee, R. Preston & McMillan, John., 1990. "Bidding Rings," Working Papers 726, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
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