This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Strategic Ex-ante Contracts: Rent-Extraction and Opportunity Costs

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Xinyu Hua
Abstract

This paper considers the possibility that a seller can contract with one uninformed buyer prior to an auction involving two potential buyers. In a more general setting than previous literature, strategic ex-ante contracts not only extract rent from entrants, but could also mitigate the seller’s ex-post rent-seeking vis-à -vis the contracted buyer, thus reducing the probability of having no trade. The seller’s optimal ex-ante contract has strategic characteristics similar to the right of first refusal, a commonly used clause. Moreover, this optimal ex-ante contract specifies a lower trade barrier for the contracted buyer. Accordingly, it could create more social welfare than the absence of ex-ante contracts, depending on the contracted buyer’s ex-ante financial constraint and the distributions of trade surplus. This paper also shows how to implement the optimal strategic ex-ante contract by combining indirect clauses when the buyers’ valuations follow the uniform distribution. Finally, greater flexibility in policy choice and other commonly used strategic clauses are discussed

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. 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.

File URL: http://www.kellogg.northwestern.edu/faculty/hua/job_market_paper.pdf
File Format: application/pdf
File Function: main text
Download Restriction: no

Publisher Info
Paper provided by Econometric Society in its series Econometric Society 2004 North American Summer Meetings with number 564.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: 11 Aug 2004
Date of revision:
Handle: RePEc:ecm:nasm04:564

Contact details of provider:
Phone: 1 212 998 3820
Fax: 1 212 995 4487
Email:
Web page: http://www.econometricsociety.org/pastmeetings.asp
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (Christopher F. Baum).

Related research
Keywords: Strateic ex-ante contracts; auctions; commitment; ex-post rent-seeking; opportunity costs;

Other versions of this item:

Find related papers by JEL classification:
L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information

This paper has been announced in the following NEP Reports:

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. Martin, Kenneth J, 1996. " The Method of Payment in Corporate Acquisitions, Investment Opportunities, and Management Ownership," Journal of Finance, American Finance Association, vol. 51(4), pages 1227-46, September. [Downloadable!] (restricted)
  2. Shavell, Steven, 1984. "The Design of Contracts and Remedies for Breach," The Quarterly Journal of Economics, MIT Press, vol. 99(1), pages 121-48, February. [Downloadable!] (restricted)
  3. William P. Rogerson, 1984. "Efficient Reliance and Damage Measures for Breach of Contract," RAND Journal of Economics, The RAND Corporation, vol. 15(1), pages 39-53, Spring. [Downloadable!] (restricted)
  4. Courty, Pascal & Li, Hao, 2000. "Sequential Screening," Review of Economic Studies, Blackwell Publishing, vol. 67(4), pages 697-717, October.
    Other versions:
  5. Klemperer, P., 1999. "Auction Theory: a Guide to the Literature," Economics Papers 1999-w12, Economics Group, Nuffield College, University of Oxford.
    Other versions:
  6. Ilya Segal, 2003. "Optimal Pricing Mechanisms with Unknown Demand," American Economic Review, American Economic Association, vol. 93(3), pages 509-529, June. [Downloadable!]
  7. Jeremy Bulow & Ming Huang & Paul Klemperer, 1999. "Toeholds and Takeovers," Finance 9903005, EconWPA. [Downloadable!]
    Other versions:
  8. Courty, Pascal, 2003. "Ticket Pricing under Demand Uncertainty," Journal of Law & Economics, University of Chicago Press, vol. 46(2), pages 627-52, October.
    Other versions:
  9. Michael J. Fishman, 1988. "A Theory of Preemptive Takeover Bidding," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 88-101, Spring. [Downloadable!] (restricted)
  10. Hart, Oliver D & Moore, John, 1988. "Incomplete Contracts and Renegotiation," Econometrica, Econometric Society, vol. 56(4), pages 755-85, July. [Downloadable!] (restricted)
    Other versions:
  11. 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)
    Other versions:
  12. 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)
  13. Harris, Milton & Holstrom, Bengt, 1982. "A Theory of Wage Dynamics," Review of Economic Studies, Blackwell Publishing, vol. 49(3), pages 315-33, July. [Downloadable!] (restricted)
    Other versions:
  14. 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)
  15. Yeon-Koo Che & Tai-Yeong Chung, 1999. "Contract Damages and Cooperative Investments," RAND Journal of Economics, The RAND Corporation, vol. 30(1), pages 84-105, Spring. [Downloadable!] (restricted)
    Other versions:
  16. Aghion, Philippe & Bolton, Patrick, 1987. "Contracts as a Barrier to Entry," American Economic Review, American Economic Association, vol. 77(3), pages 388-401, June.
  17. Lewis, Tracy R & Sappington, David E M, 2001. "Optimal Contracting with Private Knowledge of Wealth and Ability," Review of Economic Studies, Blackwell Publishing, vol. 68(1), pages 21-44, January.
  18. Tracy R. Lewis & David E. M. Sappington, 2000. "Motivating Wealth-Constrained Actors," American Economic Review, American Economic Association, vol. 90(4), pages 944-960, September. [Downloadable!] (restricted)
  19. 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)
  20. Yeon-Koo Che & Donald B. Hausch, 1999. "Cooperative Investments and the Value of Contracting," American Economic Review, American Economic Association, vol. 89(1), pages 125-147, March. [Downloadable!] (restricted)
  21. David T. Robinson & Toby E. Stuart, 2007. "Financial Contracting in Biotech Strategic Alliances," Journal of Law & Economics, University of Chicago Press, vol. 50, pages 559-596. [Downloadable!]
  22. Georg Noldeke & Klaus M. Schmidt, 1995. "Option Contracts and Renegotiation: A Solution to the Hold-Up Problem," RAND Journal of Economics, The RAND Corporation, vol. 26(2), pages 163-179, Summer. [Downloadable!] (restricted)
    Other versions:
  23. Burch, Timothy R., 2001. "Locking out rival bidders: The use of lockup options in corporate mergers," Journal of Financial Economics, Elsevier, vol. 60(1), pages 103-141, April. [Downloadable!] (restricted)
  24. Che, Yeon-Koo & Gale, Ian, 2000. "The Optimal Mechanism for Selling to a Budget-Constrained Buyer," Journal of Economic Theory, Elsevier, vol. 92(2), pages 198-233, June. [Downloadable!] (restricted)
  25. 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)
  26. 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!]
  27. Kathryn E. Spier & Michael D. Whinston, 1995. "On the Efficiency of Privately Stipulated Damages for Breach of Contract: Entry Barriers, Reliance, and Renegotiation," RAND Journal of Economics, The RAND Corporation, vol. 26(2), pages 180-202, Summer. [Downloadable!] (restricted)
  28. Chung, Tai-Yeong, 1991. "Incomplete Contracts, Specific Investments, and Risk Sharing," Review of Economic Studies, Blackwell Publishing, vol. 58(5), pages 1031-42, October. [Downloadable!] (restricted)
  29. 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.
Full references

Statistics
Access and download statistics

Did you know? Over 80% of the top 1000 economists are registered on RePEc.

This page was last updated on 2009-12-2.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.