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Surplus Squeeze and Informational Hold-Up

Author

Listed:
  • Peter Achim

    (University of York)

  • Willy Lefez

    (HU Berlin)

Abstract

We study a static bilateral trade setting with moral hazard, where a seller privately chooses quality and a buyer may pay to verify it. We show that buyer-side information acquisition can lead to informational hold-up through a mechanism wecall surplus squeezing: precise verification enables the seller to extract all buyer surplus, deterring inspection and causing trade to unravel. When verification is noisy, uncertainty preserves buyer surplus and sustains trade. Our framework highlights how strategic responses to learning can distort investment incentives, offering a new perspective on the limits of information precision in mitigating moral hazard.

Suggested Citation

  • Peter Achim & Willy Lefez, 2025. "Surplus Squeeze and Informational Hold-Up," Rationality and Competition Discussion Paper Series 538, CRC TRR 190 Rationality and Competition.
    • Handle: RePEc:rco:dpaper:538
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    Keywords

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    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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