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Title: Exclusive Contracts, Loss to Delay and Incentives to Invest

Author(s): Christian Groh and Giancarlo Spagnolo

Publication Date: August 2004

Keyword(s): bargaining, contracting, exclusive dealing, foreclosure, incomplete contracts and investment

Programme Area(s): Industrial Organization

Abstract: We model a new effect of exclusivity on non-contractible investments in buyer/seller relationships. By restricting the buyer to purchase from only one seller, exclusivity increases the buyer?s costs of haggling during renegotiation and hence the seller?s relative bargaining power and bargaining share. This in turn fosters the seller?s incentives to invest even for investments that are fully specific to the relationship (?internal investments?), in contrast to a recent finding by Segal and Whinston (2000b).

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Bibliographic Reference

Groh, C and Spagnolo, G. 2004. 'Exclusive Contracts, Loss to Delay and Incentives to Invest'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=4525