If You are Offered the Right of First Refusal, Should You Accept? An Investigation of Contract Design
Brit Grosskopf () and
Alvin Roth ()
Scholarly Articles from Harvard University Department of Economics
Rights of first refusal are contract clauses intended to provide the holder of a license or lease with some protection when the contract ends. The simplest version gives the right holder the ability to act after potential competitors. However, another common implementation requires the right holder to accept or reject some offers before potential competitors are given the same offer, and, if the right holder rejects the initial offer, allows the right to be exercised affirmatively only if competitors are subsequently offered a better deal (e.g. a lower price). We explore, theoretically and experimentally, the impact this latter form of right of first refusal can have on the outcome of negotiation. Counterintuitively, this â€œrightâ€ of first refusal can be disadvantageous to its holder. This suggests that applied contract design may benefit from the same kind of attention to detail that has begun to be given to practical market design.
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Published in Games and Economic Behavior
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Journal Article: If you are offered the Right of First Refusal, should you accept? An investigation of contract design (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:hrv:faseco:4261988
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