No Holdup in Dynamic Markets
29 Pages Posted: 4 Aug 2018 Last revised: 20 May 2020
In many markets, heterogenous agents make non-contractible investments before bargaining over both who matches with whom and the terms of trade. In static markets, the holdup problem—that is, inefficient investments caused by agents receiving only a fraction of their returns—is ubiquitous. Markets are often dynamic, however, with agents entering over time. Taking a general non-cooperative investment and bargaining approach, we show that the holdup problem vanishes in markets with dynamic entry as agents become patient: While there is substantial wiggle room for bargaining to determine outcomes, every bargaining outcome gives everyone her marginal product.
Keywords: Holdup; noncooperative bargaining; dynamic entry.
JEL Classification: C72; C78; D40; D41
Suggested Citation: Suggested Citation