Optimal Contracts With Lock-In
AbstractThe authors analyze incomplete long-term contracts when buyers incur relationship-specific set-up costs and sellers choose product or service quality that is not verifiable to third parties. If set-up costs are observable, the first-best outcome can be achieved even though contracts cannot enforceably specify quality; this does not even require long-term contracts. If set-up costs are unobservable, however, then long-term price contracts can strictly outperform short-term contracts. Equilibrium may involve either inefficiently low quality with no buyer switching or efficient quality with inefficient switching. A policy of taxing switching, or the availability of "budget-breaking" third parties, can improve welfare. Copyright 1989 by American Economic Association.
Download InfoTo our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Bibliographic InfoPaper provided by Hoover Institution, Stanford University in its series Working Papers with number e-88-45.
Length: 36 pages
Date of creation: 1988
Date of revision:
costs ; contracts ; taxation ; prices ; efficiency;
Other versions of this item:
- Farrell, Joseph & Shapiro, Carl, 1987. "Optimal Contracts with Lock-In," Department of Economics, Working Paper Series qt19f324hf, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Joseph Farrell and Carl Shapiro., 1987. "Optimal Contracts with Lock-In," Economics Working Papers 8758, University of California at Berkeley.
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- William Wilhelm & Alexander Ljungqvist, 1999.
"The Seven Percent Solution? An International Perspective on Underwriting Spreads,"
Economics Series Working Papers
1999-FE-11, University of Oxford, Department of Economics.
- Ljungqvist, Alexander P & Wilhelm Jr, William J, 2001. "The Seven Percent Solution? An International Perspective On Underwriting Spreads," CEPR Discussion Papers 2736, C.E.P.R. Discussion Papers.
- Alexander P. Ljungqvist & William J. Wilhelm, 1999. "The Seven Percent Solution? An International Perspective on Underwriting Spreads," OFRC Working Papers Series 1999fe11, Oxford Financial Research Centre.
- Constanza M. Fosco Perea M, . "Ambigüedad estratégica en contratos públicos de suministro," ILADES-Georgetown University Working Papers inv127, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines.
- Matthew Ellman, 2006. "The optimal length of contracts with application to outsourcing," Economics Working Papers 965, Department of Economics and Business, Universitat Pompeu Fabra.
- Emi Nakamura & Jon Steinsson, 2005. "Price Setting in a Forward-Looking Customer Market," Macroeconomics 0509010, EconWPA.
- Anne Perrot, 1995. "Ouverture à la concurrence dans les réseaux : l'approche stratégique de l'économie des réseaux," Économie et Prévision, Programme National Persée, vol. 119(3), pages 59-71.
- Kerem Cakirer, 2007. "A Fixed Effect Model of Endogenous Integration Decision and Its Competitive Effects," Working Papers 2007-18, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
- Claudio Agostini, 2005. "El Mercado de Transporte Aéreo: Lecciones para Chile de una Revisión de la Literatura," ILADES-Georgetown University Working Papers inv163, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines.
- Michael Waldman, 2010.
"Competition, Monopoly, and Aftermarkets,"
Journal of Law, Economics and Organization,
Oxford University Press, vol. 26(1), pages 54-91, April.
- A. Jorge Padilla, 1991. "Consumer switching costs: a survey," Investigaciones Economicas, Fundación SEPI, vol. 15(3), pages 485-504, September.
- Bijl, P.W.J. de, 1996. "Essays in Industrial Organization and Management Strategy," Open Access publications from Tilburg University urn:nbn:nl:ui:12-73588, Tilburg University.
- Dennis W. Carlton & Michael Waldman, 2005. "Tying, Upgrades, and Switching Costs in Durable-Goods Markets," NBER Working Papers 11407, National Bureau of Economic Research, Inc.
- Bijl, P.W.J. de, 1995. "Aftermarkets: The monopoly case," Discussion Paper 1995-102, Tilburg University, Center for Economic Research.
- Nicholas Economides, . "Network Economics with Application to Finance," Financial Networks _004, Economics of Networks.
- Keisuke Hattori & Amihai Glazer, 2013. "How to Commit to a Future Price," Working Papers 131402, University of California-Irvine, Department of Economics.
- Michael Waldman, 2004. "Antitrust Perspectives for Durable-Goods Markets," CESifo Working Paper Series 1306, CESifo Group Munich.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Webmaster).
If references are entirely missing, you can add them using this form.