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Holdup, search, and inefficiency

  • Shingo Ishiguro

    ()

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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File URL: http://hdl.handle.net/10.1007/s00199-009-0471-z
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Article provided by Springer & Society for the Advancement of Economic Theory (SAET) in its journal Economic Theory.

Volume (Year): 44 (2010)
Issue (Month): 2 (August)
Pages: 307-338

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Handle: RePEc:spr:joecth:v:44:y:2010:i:2:p:307-338
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  1. Kevin Roberts & Leonardo Felli, 2000. "Does Competition Solve the Hold-up Problem?," Economics Series Working Papers 2000-W11, University of Oxford, Department of Economics.
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  8. Hardman Moore, John & Hart, Oliver, 1985. "Incomplete Contracts and Renegotiation," CEPR Discussion Papers 60, C.E.P.R. Discussion Papers.
  9. Sakovics Jozsef, 1993. "Delay in Bargaining Games with Complete Information," Journal of Economic Theory, Elsevier, vol. 59(1), pages 78-95, February.
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  13. Jehiel, Philippe & Moldovanu, Benny, 1995. "Negative Externalities May Cause Delay in Negotiation," Econometrica, Econometric Society, vol. 63(6), pages 1321-35, November.
  14. Harold L. Cole & George J. Mailath & Andrew Postlewaite, 1998. "Efficient non-contractible investments," Staff Report 253, Federal Reserve Bank of Minneapolis.
  15. Armstrong, Mark, 2006. "Price discrimination," MPRA Paper 4693, University Library of Munich, Germany.
  16. Arial Rubinstein & Asher Wolinsky, 1990. "Decentralized Trading, Strategic Behaviour and the Walrasian Outcome," Levine's Working Paper Archive 622, David K. Levine.
  17. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
  18. 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.
  19. Daron Acemoglu, 1996. "A Microfoundation for Social Increasing Returns in Human Capital Accumulation," The Quarterly Journal of Economics, Oxford University Press, vol. 111(3), pages 779-804.
  20. Cai, Hongbin, 2000. "Delay in Multilateral Bargaining under Complete Information," Journal of Economic Theory, Elsevier, vol. 93(2), pages 260-276, August.
  21. Larry Samuelson, 1992. "Disagreement in Markets with Matching and Bargaining," Review of Economic Studies, Oxford University Press, vol. 59(1), pages 177-185.
  22. Busch, Lutz-Alexander & Wen, Quan, 1995. "Perfect Equilibria in Negotiation Model," Econometrica, Econometric Society, vol. 63(3), pages 545-65, May.
  23. Olivier Compte & Philippe Jehiel, 2004. "Gradualism in Bargaining and Contribution Games," Review of Economic Studies, Oxford University Press, vol. 71(4), pages 975-1000.
  24. Roman Inderst, 2001. "Screening in a Matching Market," Review of Economic Studies, Oxford University Press, vol. 68(4), pages 849-868.
  25. Samuelson, L., 1988. "Disagreement In Markets With Matching And Bargaining," Papers 9-86-1, Pennsylvania State - Department of Economics.
  26. Frankel, David M., 1998. "Creative Bargaining," Staff General Research Papers 11927, Iowa State University, Department of Economics.
  27. William P. Rogerson, 1992. "Contractual Solutions to the Hold-Up Problem," Review of Economic Studies, Oxford University Press, vol. 59(4), pages 777-793.
  28. Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 1994. "Renegotiation Design with Unverifiable Information," Econometrica, Econometric Society, vol. 62(2), pages 257-82, March.
  29. 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.
  30. Martin J. Osborne & Ariel Rubinstein, 2005. "Bargaining and Markets," Levine's Bibliography 666156000000000515, UCLA Department of Economics.
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