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Holdup, Search and Inefficiency

  • Shingo Ishiguro

    ()

    (Graduate School of Economics, Osaka University)

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://www2.econ.osaka-u.ac.jp/library/global/dp/0713.pdf
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Paper provided by Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP) in its series Discussion Papers in Economics and Business with number 07-13.

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Length: 46 pages
Date of creation: May 2007
Date of revision:
Handle: RePEc:osk:wpaper:0713
Contact details of provider: Web page: http://www.econ.osaka-u.ac.jp/
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  8. Harold L. Cole & George J. Mailath & Andrew Postlewaite, . "Efficient Non-Contractible Investments," Penn CARESS Working Papers 08d6793d32cab8f6e1f46dac0, Penn Economics Department.
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  10. Mathias Dewatripont & Philippe Aghion & Patrick Rey, 1994. "Renegotiation design with unverifiable information," ULB Institutional Repository 2013/9591, ULB -- Universite Libre de Bruxelles.
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  12. Samuelson, L., 1988. "Disagreement In Markets With Matching And Bargaining," Papers 9-86-1, Pennsylvania State - Department of Economics.
  13. Busch, Lutz-Alexander & Wen, Quan, 1995. "Perfect Equilibria in Negotiation Model," Econometrica, Econometric Society, vol. 63(3), pages 545-65, May.
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  19. Martin J. Osborne & Ariel Rubinstein, 2005. "Bargaining and Markets," Levine's Bibliography 666156000000000515, UCLA Department of Economics.
  20. Cai, Hongbin, 2000. "Delay in Multilateral Bargaining under Complete Information," Journal of Economic Theory, Elsevier, vol. 93(2), pages 260-276, August.
  21. Arial Rubinstein & Asher Wolinsky, 1990. "Decentralized Trading, Strategic Behaviour and the Walrasian Outcome," Levine's Working Paper Archive 622, David K. Levine.
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  23. Merlo, Antonio & Wilson, Charles A, 1995. "A Stochastic Model of Sequential Bargaining with Complete Information," Econometrica, Econometric Society, vol. 63(2), pages 371-99, March.
  24. Frankel, David M., 1998. "Creative Bargaining," Games and Economic Behavior, Elsevier, vol. 23(1), pages 43-53, April.
  25. Sakovics Jozsef, 1993. "Delay in Bargaining Games with Complete Information," Journal of Economic Theory, Elsevier, vol. 59(1), pages 78-95, February.
  26. Philippe Jehiel & Benny Moldovanu, 1995. "Cyclical Delay in Bargaining with Externalities," Review of Economic Studies, Oxford University Press, vol. 62(4), pages 619-637.
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  28. Jehiel, Philippe & Moldovanu, Benny, 1995. "Negative Externalities May Cause Delay in Negotiation," Econometrica, Econometric Society, vol. 63(6), pages 1321-35, November.
  29. Armstrong, Mark, 2006. "Price discrimination," MPRA Paper 4693, University Library of Munich, Germany.
  30. 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.
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