Exclusive Contracts, Loss to Delay and Incentives to Invest

Giancarlo Spagnolo and Christian Groh

No 509, Econometric Society 2004 North American Winter Meetings from Econometric Society

Abstract: We take the view that alternative trading opportunities may influence the loss to delay in a bargaining situation, and show that contractual exclusivity may then be relevant even for ‘internal’ investments, contradicting a recent finding by Segal and Whinston (2000). When a buyer is an ongoing concern, exclusivity in supply increases his cost of haggling/bargaining with the supplier by preventing him to buy substitute inputs, produce and cover running costs during renegotiations. This may imply a larger bargaining share for the seller and increase his investment incentives. We model this effect using Rubinstein’s (1982) bargaining model with constant but endogenous time cost

Keywords: Exclusivity; Investment; Incomplete Contracts; Cost of Bargaining; Cost of Haggling (search for similar items in EconPapers)
JEL-codes: C78 L00 L42 (search for similar items in EconPapers)
Date: 2004-08-11
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:ecm:nawm04:509

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