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Holdup, Search and Inefficiency

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Author Info
Shingo Ishiguro () (Graduate School of Economics, Osaka University)
Abstract

This paper investigates the holdup problem in the dynamic search market where buyers and sellers search for their trading partners and specific investments are made after match but before trade. We show that frictionless (competitive) market imposes severe limitations on attainable efficiencies: Markets with small friction make the holdup problem more serious than those with large friction because in any equilibrium, whether stationary or non-stationary, investment must be dropped down to the minimum level and trade must be delayed with positive probability.

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Publisher Info
Paper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 07-13.

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Length: 46 pages
Date of creation: May 2007
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Handle: RePEc:osk:wpaper:0713

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Web page: http://www.econ.osaka-u.ac.jp/
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Related research
Keywords: Delay of Trade Holdup Problem Search

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Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory

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    Other versions:
  3. Armstrong, Mark, 2006. "Price discrimination," MPRA Paper 4693, University Library of Munich, Germany. [Downloadable!]
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    Other versions:
  7. de Meza, David & Lockwood, Ben, 2004. "Too Much Investment : A Problem Of Coordination Failure," The Warwick Economics Research Paper Series (TWERPS) 703, University of Warwick, Department of Economics. [Downloadable!]
  8. Busch, Lutz-Alexander & Wen, Quan, 1995. "Perfect Equilibria in Negotiation Model," Econometrica, Econometric Society, vol. 63(3), pages 545-65, May. [Downloadable!] (restricted)
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  9. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-58, December. [Downloadable!] (restricted)
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  12. Acemoglu, Daron, 2001. "Good Jobs versus Bad Jobs," Journal of Labor Economics, University of Chicago Press, vol. 19(1), pages 1-21, January. [Downloadable!] (restricted)
  13. Sakovics Jozsef, 1993. "Delay in Bargaining Games with Complete Information," Journal of Economic Theory, Elsevier, vol. 59(1), pages 78-95, February. [Downloadable!] (restricted)
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  16. Inderst, Roman, 2001. "Screening in a Matching Market," Review of Economic Studies, Blackwell Publishing, vol. 68(4), pages 849-68, October.
  17. Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 1994. "Renegotiation Design with Unverifiable Information," Econometrica, Econometric Society, vol. 62(2), pages 257-82, March. [Downloadable!] (restricted)
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  18. Yeon-Koo Che & József Sákovics, 2004. "A Dynamic Theory of Holdup," Econometrica, Econometric Society, vol. 72(4), pages 1063-1103, 07. [Downloadable!] (restricted)
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  19. Merlo, Antonio & Wilson, Charles A, 1995. "A Stochastic Model of Sequential Bargaining with Complete Information," Econometrica, Econometric Society, vol. 63(2), pages 371-99, March. [Downloadable!] (restricted)
  20. Samuelson, Larry, 1992. "Disagreement in Markets with Matching and Bargaining," Review of Economic Studies, Blackwell Publishing, vol. 59(1), pages 177-85, January. [Downloadable!] (restricted)
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  22. Hart, Oliver D & Moore, John, 1988. "Incomplete Contracts and Renegotiation," Econometrica, Econometric Society, vol. 56(4), pages 755-85, July. [Downloadable!] (restricted)
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  23. MacLeod, W Bentley & Malcomson, James M, 1993. "Investments, Holdup, and the Form of Market Contracts," American Economic Review, American Economic Association, vol. 83(4), pages 811-37, September. [Downloadable!] (restricted)
  24. 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)
  25. Acemoglu, Daron & Shimer, Robert, 1999. "Holdups and Efficiency with Search Frictions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 827-49, November.
    Other versions:
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