International Trade, Bargaining and Efficiency: The Holdup Problem

Marina Wes

Scandinavian Journal of Economics, 2000, vol. 102, issue 1, 151-162

Abstract: In the presence of product market imperfections and holdup, we identify allocative and productive efficiency gains resulting from international trade. Under a bilateral monopoly in a closed economy, inefficiencies arise in both input and output markets. Trade in final goods has a procompetitive effect in the product market. This in turn triggers an increase in output, which raises incentives for the upstream firm to invest and helps reduce the hold‐up problem. JEL classification: F12; F13; F15

Date: 2000
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