Relationship-specific investment as a barrier to entry

Hiroshi Kitamura (), Akira Miyaoka () and Misato Sato ()
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Hiroshi Kitamura: Kyoto Sangyo University
Akira Miyaoka: Kansai University
Misato Sato: The George Washington University

Journal of Economics, 2016, vol. 119, issue 1, No 2, 17-45

Abstract: Abstract This study constructs a model of a relationship-specific investment in a dynamic framework. Although such investment decreases operating costs and increases the current joint profits of firms in vertical relationships, its specificity reduces the ex-post flexibility to change a trading partner in the future. We demonstrate that whether the investment contract deters entry even in the absence of exclusionary terms depends on not only the specificity but also the efficiency of the investment. We also show that an increase in the investment efficiency does not necessarily improve the equilibrium social welfare.

Keywords: Vertical relation; Entry deterrence; Relationship-specific investment; Switching costs (search for similar items in EconPapers)
JEL-codes: L12 L41 L42 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:kap:jeczfn:v:119:y:2016:i:1:d:10.1007_s00712-016-0482-8

DOI: 10.1007/s00712-016-0482-8

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