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Exclusive Contracts, Loss to Delay and Incentives to Invest

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  • 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

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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society 2004 North American Winter Meetings with number 509.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:nawm04:509

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Keywords: Exclusivity; Investment; Incomplete Contracts; Cost of Bargaining; Cost of Haggling;

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Cited by:
  1. Chiara Fumagalli & Massimo Motta & Thomas Rønde, 2009. "Exclusive Dealing: The Interaction between Foreclosure and Investment Promotion," Working Papers 2009.120, Fondazione Eni Enrico Mattei.

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