Working Paper: CEPR ID: DP4525
Authors: Christian Groh; Giancarlo Spagnolo
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; foreclosure; incomplete contracts; investment
JEL Codes: C78; D23; L20; L42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| exclusivity (Y60) | seller's relative bargaining power (L14) |
| exclusivity (Y60) | investment incentives (O31) |
| exclusivity (Y60) | buyer's costs of haggling (C78) |
| buyer's costs of haggling (C78) | seller's relative bargaining power (L14) |
| seller's relative bargaining power (L14) | investment incentives (O31) |
| exclusivity (Y60) | parties' loss to delay during negotiations (J52) |
| parties' loss to delay during negotiations (J52) | relative bargaining power (C79) |
| relative bargaining power (C79) | distribution of surplus (D39) |