DP4525 Exclusive Contracts, Loss to Delay and Incentives to Invest
|Author(s):||Christian Groh, Giancarlo Spagnolo|
|Publication Date:||August 2004|
|Keyword(s):||bargaining, contracting, exclusive dealing, foreclosure, incomplete contracts, investment|
|JEL(s):||C78, D23, L20, L42|
|Programme Areas:||Industrial Organization|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=4525|
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).