Incomplete Contracts, Irreversible Investments and Entry Deterrence

Antonio Nicita () and Massimiliano Vatiero

Department of Economics University of Siena from Department of Economics, University of Siena

Abstract: 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

Keywords: strategic and specific investments; hold-up; outside options; entry deterrence (search for similar items in EconPapers)
JEL-codes: D23 D85 L14 (search for similar items in EconPapers)
Date: 2009-08
New Economics Papers: this item is included in nep-cfn, nep-com, nep-cta and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://repec.deps.unisi.it/quaderni/566.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:usi:wpaper:566

Access Statistics for this paper

More papers in Department of Economics University of Siena from Department of Economics, University of Siena Contact information at EDIRC.
Bibliographic data for series maintained by Fabrizio Becatti ().