Double Auctions, Ex-Post Participation Constraints, and the Hold-Up Problem

Thomas Troger

University of California at Santa Barbara, Economics Working Paper Series from Department of Economics, UC Santa Barbara

Abstract: This paper makes two contributions in the context of seller-buyer relationships with bilateral relationship-specific investment. Firstly, we demonstrate how ex-post negotiations via double auctions can be used to alleviate and often resolve the hold-up problem. Secondly, we show that ex-post participation constraints make the hold-up problem unavoidable in environments where (i) production costs are relatively high compared to valuations and (ii) the trade price is independent of the investment levels.

Keywords: hold-up problem; double auction; participation constraints (search for similar items in EconPapers)
Date: 2002-10-03
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