Managing Strategically Outside Options under Incomplete Contracts

Antonio Nicita ()

Journal of Industry, Competition and Trade, 2013, vol. 13, issue 3, 374 pages

Abstract: This paper studies an incomplete contract framework in which specific investments affect parties’ outside options. We show that the ‘direction’ of standard hold-up in this new framework strictly depends on the impact generated by investments on ex-post parties’ outside options. This conclusion reverses some of the main results raised by the standard literature on incomplete contracts. Under given conditions, parties may even over-invest in assets specificity, as the changes induced in outside options improve their ex-post bargaining power. We discuss the implications for competition policy and for the management of incomplete contracts. Copyright Springer Science+Business Media New York 2013

Keywords: incomplete contracts; hold-up problem; strategic behavior; endogenous outside options; cross competition; vertical integration; D23; L12; L14; L21; L22; L42 (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:kap:jincot:v:13:y:2013:i:3:p:361-374

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DOI: 10.1007/s10842-012-0129-6

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