Incomplete Contracts, Irreversible Investments and Entry Deterrence
When renegotiation under incomplete contracts follows the outside option principle, hold-up may occur as the ex-post degree of competition increases on investor’s side. However, under this framework, asset specificity may play the counterintuitive role of an entry deterrence device, thus decreasing the probability of hold-up. Our result contrasts with standard literature in three respects: i) an equilibrium with overinvestment may emerge; ii) the 'intimidating effect' of overinvestment acts as an endogenous enforcement device; iii) a pervasive trade-off may emerge between ex-post efficient entry and ex-ante efficient specific investments
|Date of creation:||Aug 2009|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.deps.unisi.it/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Binmore, Ken & Shaked, Avner & Sutton, John, 1989. "An Outside Option Experiment," The Quarterly Journal of Economics, MIT Press, vol. 104(4), pages 753-70, November.
- Dixit, Avinash, 1979.
"The Role of Investment in Entry-Deterrence,"
The Warwick Economics Research Paper Series (TWERPS)
140, University of Warwick, Department of Economics.
- Martin J. Osborne & Ariel Rubinstein, 2005. "Bargaining and Markets," Levine's Bibliography 666156000000000515, UCLA Department of Economics.
- Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
- Aghion, Philippe & Bolton, Patrick, 1987. "Contracts as a Barrier to Entry," American Economic Review, American Economic Association, vol. 77(3), pages 388-401, June.
When requesting a correction, please mention this item's handle: RePEc:usi:wpaper:566. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Fabrizio Becatti)
If references are entirely missing, you can add them using this form.