Bilateral Investment in a Delegated Common Agency

Guillem Roig

No 15892, Documentos de Trabajo from Universidad del Rosario

Abstract: I study a bilateral investment game where a buyer privately trades with several suppliers who compete by offering menus of non-exclusive contracts. When market trading is structured so that competition among suppliers is the most intense, the hold-up problem disappears for an extensive range of the investment costs. The investment of the supplier does not affect its bargaining position, and both the supplier and the buyer have the right incentives to invest. In any other equilibria, the efficient investment is not implemented: the reallocation of bargaining power as a result of investment distorts the incentives to invest efficiently. However, because under some parameters of the model investment decisions are strategic complements welfare is maximised for an intermediate level of competition.

Keywords: Bilateral Investment; Hold-up; Non-Exclusive Contracts; Competition. (search for similar items in EconPapers)
JEL-codes: D44 L11 (search for similar items in EconPapers)
Pages: 46
Date: 2017-12-01
New Economics Papers: this item is included in nep-com and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:col:000092:015892

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