Dixit versus Williamson: the ‘fundamental transformation’ reconsidered

Antonio Nicita () and Massimiliano Vatiero

European Journal of Law and Economics, 2014, vol. 37, issue 3, 439-453

Abstract: Comparing the literature on hold-up and strategic entry deterrence leads to a puzzling role for sunk or specific investments in affecting investor’s incentive. In one case, non-redeployable investments decrease investor’s ex-post bargaining power. In the other they increase it. When the entry deterrence effect is acknowledged, the threat of hold-up against investor is largely weakened. Contrary to previous literature, in this respect, asset specificity may even constitute an endogenous enforcement device for incomplete contracts. We conclude that the impact of asset specificity on investor’s post-contractual power, far from being general, depends on the nature of interactions between contractual arrangements and market structure. Copyright Springer Science+Business Media, LLC 2014

Keywords: Fundamental transformation; Asset-specificity; Entry deterrence; D23; L12 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1007/s10657-012-9299-2

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