Does Competition Solve the Hold-up Problem?


Type
Article
Change log
Authors
Roberts, K 
Abstract

© 2016 The London School of Economics and Political Science. In an environment in which heterogeneous buyers and sellers undertake ex ante investments, the presence of market competition for matches provides incentives for investment but may leave inefficiencies, namely hold-up and coordination problems. This paper shows, using an explicitly non-cooperative model, that when matching is assortative and investments precede market competition, buyers' investments are constrained efficient while sellers marginally underinvest with respect to what would be constrained efficient. However, the overall extent of this inefficiency may be large. Multiple equilibria may arise; one equilibrium is characterized by efficient matches, but there can be additional equilibria with coordination failures. Economica

Description
Keywords
38 Economics, 3801 Applied Economics, 3803 Economic Theory, 9 Industry, Innovation and Infrastructure
Journal Title
Economica
Conference Name
Journal ISSN
0013-0427
1468-0335
Volume Title
83
Publisher
Wiley
Rights
All rights reserved