The Hold-up Problem Under Common Agency

Antonio Nicita () and Simone Sepe ()

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

Abstract: Many real world transactions occur in a common agency environment in which an agent interacts with several principals having competing interests. The hold-up literature, however, has so far neglected to investigate common agency transactions. In this paper, we consider the hold-up problem that arises in a context where there are a monopolistic seller and multiple buyers on the one side and all the parties on the other are required to make specific self-investments. Our contribution is twofold. First, we show that absent initial contracts (i.e., preliminary agreements) between the parties, total efficiency increases when the buyers act competitively using implicit contractual coordination, i.e., contractual menus. Second, we show that introducing initial simple contracts allows parties to reach the first best only under cooperative common agency. Absent this machinery, competition among the principals emerges as a more efficient governance structure for common agency in incomplete transactions.

Keywords: incomplete contracts; common agency; mechanism design (search for similar items in EconPapers)
JEL-codes: C70 J41 K12 L22 (search for similar items in EconPapers)
Date: 2012-05
New Economics Papers: this item is included in nep-bec, nep-com, nep-cta, nep-law and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:usi:wpaper:636

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