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Exclusive Contracts, Loss to Delay and Incentives to Invest

Author

Listed:
  • Giancarlo Spagnolo
  • Christian Groh

Abstract

We take the view that alternative trading opportunities may influence the loss to delay in a bargaining situation, and show that contractual exclusivity may then be relevant even for ‘internal’ investments, contradicting a recent finding by Segal and Whinston (2000). When a buyer is an ongoing concern, exclusivity in supply increases his cost of haggling/bargaining with the supplier by preventing him to buy substitute inputs, produce and cover running costs during renegotiations. This may imply a larger bargaining share for the seller and increase his investment incentives. We model this effect using Rubinstein’s (1982) bargaining model with constant but endogenous time cost

Suggested Citation

  • Giancarlo Spagnolo & Christian Groh, 2004. "Exclusive Contracts, Loss to Delay and Incentives to Invest," Econometric Society 2004 North American Winter Meetings 509, Econometric Society.
    • Handle: RePEc:ecm:nawm04:509
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    Cited by:

    1. Motta, Massimo & Fumagalli, Chiara & Rønde, Thomas, 2009. "Exclusive dealing: the interaction between foreclosure and investment promotion," CEPR Discussion Papers 7240, C.E.P.R. Discussion Papers.
    2. Agamirova, Maria Е. (Агамирова, Мария) & Dzagurova, Nataliya B. (Дзагурова, Наталия), 2016. "The Legality of Vertical Restraints by the Rule of Reason and the Character of the Specific Investments [Правомерность Вертикальных Ограничивающих Соглашений С Позиции "Взвешенного Подхода&quo," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 6, pages 122-137, December.
    3. David Meza & Mariano Selvaggi, 2007. "Exclusive contracts foster relationship-specific investment," RAND Journal of Economics, RAND Corporation, vol. 38(1), pages 85-97, March.

    More about this item

    Keywords

    Exclusivity; Investment; Incomplete Contracts; Cost of Bargaining; Cost of Haggling;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • L00 - Industrial Organization - - General - - - General
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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