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Transparency, Complementarity and Holdout

  • Prabal Roy Chowdhury
  • Kunal Sengupta

This article characterizes the conditions under which holdout (i.e. bargaining inefficiency) may, or may not be significant in a two-sided, one-buyer-many-seller model with complementarity. Our central result is that the severity of holdout (i.e. inefficiency) is critically dependent on three factors, (a) the transparency of the bargaining protocol, (b) the outside option of the buyer, and (c) the marginal contribution of the last seller. We find that although the accepted wisdom that holdout is severe, goes through whenever either the buyer has no outside option, or the bargaining protocol is secret, the holdout problem however is largely resolved whenever either the bargaining protocol is transparent and the buyer has a positive outside option, or if the marginal contribution of the last seller is not too large.

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File URL: http://www.buseco.monash.edu.au/eco/research/papers/2010/4910transparancychowdhurysengupta.pdf
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Paper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number 49-10.

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Length: 26 pages
Date of creation: May 2010
Date of revision:
Handle: RePEc:mos:moswps:2010-49
Contact details of provider: Postal: Department of Economics, Monash University, Victoria 3800, Australia
Phone: +61-3-9905-2493
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Web page: http://www.buseco.monash.edu.au/eco/
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