Exclusive Contracts, Loss to Delay and Incentives to Invest

21 Pages Posted: 21 Sep 2004

See all articles by Christian Groh

Christian Groh

University of Bonn

Giancarlo Spagnolo

Stockholm School of Economics (SITE); Centre for Economic Policy Research (CEPR); University of Rome 'Tor Vergata'; EIEF

Date Written: August 2004

Abstract

We model a new effect of exclusivity on non-contractible investments in buyer/seller relationships. By restricting the buyer to purchase from only one seller, exclusivity increases the buyer's costs of haggling during renegotiation and, hence, the seller's relative bargaining power and bargaining share. This, in turn, fosters the seller's incentives to invest even for investments that are fully specific to the relationship ('internal investments'), in contrast to a recent finding by Segal and Whinston (2000b).

Keywords: Bargaining, contracting, exclusive dealing, incomplete contracts, investment, foreclosure

JEL Classification: C78, D23, L20, L42

Suggested Citation

Groh, Christian and Spagnolo, Giancarlo, Exclusive Contracts, Loss to Delay and Incentives to Invest (August 2004). Available at SSRN: https://ssrn.com/abstract=593865

Christian Groh

University of Bonn ( email )

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Giancarlo Spagnolo (Contact Author)

Stockholm School of Economics (SITE) ( email )

P.O. Box 6501
Stockholm
Sweden

HOME PAGE: http://https://sites.google.com/site/giancarlospagnoloshomepage/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

University of Rome 'Tor Vergata' ( email )

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Rome, RM 00133
Italy

EIEF ( email )

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Italy

HOME PAGE: http://WWW.EIEF.IT

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