Does Competition Solve the Hold-Up Problem?Leonardo Felli () and Kevin Roberts No CESifo Working Paper No. 317, CESifo Working Paper Series from CESifo Group Munich Abstract: In an environment in which both buyers and sellers can undertake match specific investments, the presence of market competition for matches may solve hold-up and coordination problems generated by the absence of complete contingent contracts. In particular, this paper shows that when matching is assortative and sellers' investments precede market competition then investments are constrained efficient. One equilibrium is efficient with efficient matches but also there can be equilibria with coordination failures. Different types of inefficiency arise when buyers undertake investment before market competition. These inefficiencies lead to buyers' under-investments due to a hold-up problem but, when competition is at its peak, there is a unique equilibrium of the competition game with efficient matches - no coordination failures - and the aggregate hold-up inefficiency is small in a well defined sense independent of market size JEL-codes: D43 D83 (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: http://EconPapers.repec.org/RePEc:ces:ceswps:_317 Access Statistics for this paper More papers in CESifo Working Paper Series from CESifo Group Munich |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
Swedish Business School at Örebro University.