THE ROLE OF EXCLUSIVE CONTRACTS IN FACILITATING MARKET TRANSACTIONS*

Niko Matouschek and Paolo Ramezzana

Journal of Industrial Economics, 2007, vol. 55, issue 2, 347-371

Abstract: We examine the relationship between market conditions and the adoption of exclusive contracts. In particular, we develop a matching model in which agents may decide to adopt exclusive contracts to reduce bilateral bargaining inefficiencies in the presence of private information. We show that it is optimal for agents to adopt exclusive contracts in thin markets but not in thick markets and that for intermediate levels of market thickness strategic complementarities lead to multiple equilibria. We study the welfare properties of market equilibria and discuss under what circumstances courts should enforce exclusive contracts.

Date: 2007
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https://doi.org/10.1111/j.1467-6451.2007.00314.x

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Persistent link: https://EconPapers.repec.org/RePEc:bla:jindec:v:55:y:2007:i:2:p:347-371

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