No Holdup in Dynamic Markets

29 Pages Posted: 4 Aug 2018 Last revised: 20 May 2020

Abstract

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

Elliott, Matthew and Talamàs, Eduard, No Holdup in Dynamic Markets. Available at SSRN: https://ssrn.com/abstract=3218411 or http://dx.doi.org/10.2139/ssrn.3218411

Matthew Elliott (Contact Author)

Cambridge University ( email )

Faculty of Economics
Austin Robinson Building Sidgwick Avenue
Cambridge, CB39DD
United Kingdom

Eduard Talamàs

IESE Business School ( email )

Arnús i Garí, 3-7
Barcelona, Philadelphia 08034
Spain

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