Trilateral Contract and the Hold-up Problem

Regine Oexl ()
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Regine Oexl: Università di Padova

No 126, "Marco Fanno" Working Papers from Dipartimento di Scienze Economiche "Marco Fanno"

Abstract: We present a novel solution for the hold up problem, when more than two parties are involved. The case we consider is a company selling identical products to two buyers that have a common interest in inducing the seller to make a quality enhancing investment. We show that a trilateral contract may provide the correct incentives to restore optimal efficiency. The contract induces a coalition proof Nash equilibrium and holds under complete as well as incomplete information. The extension to more than two buyers is straightforward.

Keywords: Multilateral Contract; Trilateral Contract; Hold-up Problem. (search for similar items in EconPapers)
JEL-codes: D82 L14 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2011-01
New Economics Papers: this item is included in nep-cta and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:pad:wpaper:0126

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