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Does Competition Solve the Hold-Up Problem?

  • Felli, L.
  • Roberts, K.

In an environment in which both buyers and sellers can undertake match specific investments, the presence of market competition for matches may solve hold-up and coordination problems generated by the absence of complete contingent contracts. In particular, this paper shows that when marching is assortative and sellers' investment precede market competition the investments are constrained efficient.

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Paper provided by Economics Group, Nuffield College, University of Oxford in its series Economics Papers with number 2000-w11.

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Length: 54 pages
Date of creation: 2000
Date of revision:
Handle: RePEc:nuf:econwp:2000-w11
Contact details of provider: Web page: http://www.nuff.ox.ac.uk/economics/

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  1. Felli, Leonardo & Harris, Christopher, 1996. "Learning, Wage Dynamics, and Firm-Specific Human Capital," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 838-68, August.
  2. Michael Peters & Aloysius Siow, 2002. "Competing Premarital Investments," Journal of Political Economy, University of Chicago Press, vol. 110(3), pages 592-608, June.
  3. Eeckhout, Jan, 1999. "Bilateral Search and Vertical Heterogeneity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 869-87, November.
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  5. Harold L. Cole & George J. Mailath & Andrew Postlewaite, 1998. "Efficient non-contractible investments," Staff Report 253, Federal Reserve Bank of Minneapolis.
  6. Holmstrom, Bengt, 1999. "The Firm as a Subeconomy," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(1), pages 74-102, April.
  7. Hart, Oliver D & Moore, John, 1988. "Incomplete Contracts and Renegotiation," Econometrica, Econometric Society, vol. 56(4), pages 755-85, July.
  8. Bolton, Patrick & Whinston, Michael D, 1993. "Incomplete Contracts, Vertical Integration, and Supply Assurance," Review of Economic Studies, Wiley Blackwell, vol. 60(1), pages 121-48, January.
  9. David de Meza & Ben Lockwood, 2004. "Spillovers, Investment Incentives and the Property Rights Theory of the Firm," Journal of Industrial Economics, Wiley Blackwell, vol. 52(2), pages 229-253, 06.
  10. David de Meza & Ben Lockwood, 1998. "The property-rights theory of the firm with endogenous timing of asset purchase," LSE Research Online Documents on Economics 19351, London School of Economics and Political Science, LSE Library.
  11. Philippe Aghion & Jean Tirole, 1994. "Formal and Real Authority in Organizations," Working papers 95-8, Massachusetts Institute of Technology (MIT), Department of Economics.
  12. Nöldeke, Georg & Schmidt, Klaus M., 1995. "Option contracts and renegotiation: A solution to the Hold-Up Problem," Munich Reprints in Economics 19329, University of Munich, Department of Economics.
  13. Hart, Oliver D, 1979. "Monopolistic Competition in a Large Economy with Differentiated Commodities," Review of Economic Studies, Wiley Blackwell, vol. 46(1), pages 1-30, January.
  14. Kamecke, Ulrich, 1992. "On the uniqueness of the solution to a large linear assignment problem," Journal of Mathematical Economics, Elsevier, vol. 21(6), pages 509-521.
  15. repec:att:wimass:9608 is not listed on IDEAS
  16. Moen, Espen R, 1997. "Competitive Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 385-411, April.
  17. Acemoglu, Daron, 1997. "Training and Innovation in an Imperfect Labour Market," Review of Economic Studies, Wiley Blackwell, vol. 64(3), pages 445-64, July.
  18. Maskin, Eric & Tirole, Jean, 1999. "Two Remarks on the Property-Rights Literature," Review of Economic Studies, Wiley Blackwell, vol. 66(1), pages 139-49, January.
  19. Maskin, Eric & Tirole, Jean, 1999. "Unforeseen Contingencies and Incomplete Contracts," Review of Economic Studies, Wiley Blackwell, vol. 66(1), pages 83-114, January.
  20. Daron Acemoglu & Robert Shimer, 1998. "Holdups and Efficiency with Search Frictions," Working papers 98-14, Massachusetts Institute of Technology (MIT), Department of Economics.
  21. Aghion, Philippe & Dewatripont, Mathias & Rey, Patrick, 1994. "Renegotiation Design with Unverifiable Information," Scholarly Articles 12375014, Harvard University Department of Economics.
  22. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
  23. Burdett, Ken & Coles, Melvyn G, 1997. "Marriage and Class," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 141-68, February.
  24. Rachel E. Kranton & Deborah F. Minehart, 2001. "A Theory of Buyer-Seller Networks," American Economic Review, American Economic Association, vol. 91(3), pages 485-508, June.
  25. Ramey Garey & Watson Joel, 2001. "Bilateral Trade and Opportunism in a Matching Market," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 1(1), pages 1-35, November.
  26. Mortensen, Dale T & Pissarides, Christopher A, 1994. "Job Creation and Job Destruction in the Theory of Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 397-415, July.
  27. 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.
  28. Kalyan Chatterjee & Y. Stephen Chiu, 2000. "When Does Competition Lead to Efficient Investments?," Econometric Society World Congress 2000 Contributed Papers 0518, Econometric Society.
  29. Mamoru Kaneko, 1980. "The Central Assignment Game and the Assignment Markets," Cowles Foundation Discussion Papers 563, Cowles Foundation for Research in Economics, Yale University.
  30. Makowski, Louis & Ostroy, Joseph M, 1995. "Appropriation and Efficiency: A Revision of the First Theorem of Welfare Economics," American Economic Review, American Economic Association, vol. 85(4), pages 808-27, September.
  31. Aaron S. Edlin and Chris Shannon., 1995. "Strict Monotonicity in Comparative Statics," Economics Working Papers 95-238, University of California at Berkeley.
  32. Grout, Paul A, 1984. "Investment and Wages in the Absence of Binding Contracts: A Nash Bargining Approach," Econometrica, Econometric Society, vol. 52(2), pages 449-60, March.
  33. Cooper, Russell & John, Andrew, 1988. "Coordinating Coordination Failures in Keynesian Models," The Quarterly Journal of Economics, MIT Press, vol. 103(3), pages 441-63, August.
  34. Milgrom, Paul & Roberts, John, 1990. "Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities," Econometrica, Econometric Society, vol. 58(6), pages 1255-77, November.
  35. Cole, Harold L. & Mailath, George J. & Postlewaite, Andrew, 2001. "Efficient Non-Contractible Investments in Large Economies," Journal of Economic Theory, Elsevier, vol. 101(2), pages 333-373, December.
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