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Exclusive Contracts, Loss to Delay and Incentives to Invest

Author

Listed:
  • 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

Suggested Citation

  • Giancarlo Spagnolo & Christian Groh, 2004. "Exclusive Contracts, Loss to Delay and Incentives to Invest," Econometric Society 2004 North American Winter Meetings 509, Econometric Society.
  • Handle: RePEc:ecm:nawm04:509
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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. 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.
    3. David Meza & Mariano Selvaggi, 2007. "Exclusive contracts foster relationship-specific investment," RAND Journal of Economics, RAND Corporation, vol. 38(1), pages 85-97, March.

    More about this item

    Keywords

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

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • L00 - Industrial Organization - - General - - - General
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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