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Exclusive Contracts, Loss to Delay and Incentives to Invest

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  • Groh, Christian
  • Spagnolo, Giancarlo

Abstract

We model a new effect of exclusivity on non-contractible investments in buyer/seller relationships. By restricting the buyer to purchase from only one seller, exclusivity increases the buyer’s costs of haggling during renegotiation and hence the seller’s relative bargaining power and bargaining share. This in turn fosters the seller’s incentives to invest even for investments that are fully specific to the relationship (‘internal investments’), in contrast to a recent finding by Segal and Whinston (2000b).

Suggested Citation

  • Groh, Christian & Spagnolo, Giancarlo, 2004. "Exclusive Contracts, Loss to Delay and Incentives to Invest," CEPR Discussion Papers 4525, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:4525
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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.
    2. David Meza & Mariano Selvaggi, 2007. "Exclusive contracts foster relationship-specific investment," RAND Journal of Economics, RAND Corporation, vol. 38(1), pages 85-97, March.
    3. Agamirova, Maria Å. & Dzagurova, Nataliya B., 2016. "The Legality of Vertical Restraints by the Rule of Reason and the Character of the Specific Investments," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 6, pages 122-137, December.

    More about this item

    Keywords

    bargaining; contracting; exclusive dealing; foreclosure; incomplete contracts; investment;

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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