Switching costs and screening efficiency of incomplete contracts
Mehmet Bac
Canadian Journal of Economics, 2000, vol. 33, issue 4, 1034-1048
Abstract:
We study the role of switching costs in a dynamic buyer-seller relationship where quality is not contractible and the sellers retain private information about their quality-relevant abilities. In this environment buyer switching costs increase the seller's bargaining power in negotiations for the second contract, but they also induce the seller to improve quality during the first contract, in signalling his type. The overall effect is to enhance efficiency and increase the buyer's welfare. This beneficial effect stems from the link between quality, the buyer's posterior beliefs, and ex post distribution of bargaining power as a function of the switching cost.
JEL-codes: L14 (search for similar items in EconPapers)
Date: 2000
References: Add references at CitEc
Citations: View citations in EconPapers (4)
Downloads: (external link)
https://links.jstor.org/sici?sici=0008-4085%282000 ... CASEO%3E2.0.CO%3B2-V (text/html)
only available to JSTOR subscribers
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:cje:issued:v:33:y:2000:i:4:p:1034-1048
Ordering information: This journal article can be ordered from
https://www.economic ... ionen/membership.php
Access Statistics for this article
Canadian Journal of Economics is currently edited by Zhiqi Chen
More articles in Canadian Journal of Economics from Canadian Economics Association Canadian Economics Association Prof. Werrner Antweiler, Treasurer UBC Sauder School of Business 2053 Main Mall Vancouver, BC, V6T 1Z2. Contact information at EDIRC.
Bibliographic data for series maintained by Prof. Werner Antweiler ().