Please Hold me Up: Why Firms Grant Exclusive Dealing Contracts

David de Meza and Marianno Selvaggi ()

The Centre for Market and Public Organisation from Department of Economics, University of Bristol, UK

Abstract: Why do irreplaceable firms with a choice of suppliers or customers deliberately expose themselves to the threat of hold up by contracting ex ante to deal with only one of them? Our explanation revolves around the multiple equilibria intrinsic to situations of unverifiable investment and many traders. Exclusive dealing eliminates inefficient equilibria in which too many firms invest too little. The enhanced ex post bargaining power of the chosen firm is beneficial for incentives whilst the distributional impact is more than offset in the ex ante negotiations over which this firm obtains the access privilege.

Keywords: exclusive dealing; hold-up; renegotiation (search for similar items in EconPapers)
JEL-codes: C70 D23 L42 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com and nep-mfd
Date: 2003-04
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Persistent link: http://EconPapers.repec.org/RePEc:bri:cmpowp:03/066

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