Specificity revisited: The role of cross-investments

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Journal of Law Economics and Organization, Vol. 22, No. 1, 2006
To cite or link this document: http://hdl.handle.net/10230/705
dc.contributor.author Ellman, Matthew
dc.contributor.other Universitat Pompeu Fabra. Departament d'Economia i Empresa
dc.date.issued 2004-11-01
dc.identifier.citation Journal of Law Economics and Organization, Vol. 22, No. 1, 2006
dc.identifier.uri http://hdl.handle.net/10230/705
dc.description.abstract Previous analysis has shown that traders may opt for specific technologies with no joint productivity advantage as a way to commit themselves to trading jointly, but only when long-term contracting is infeasible. This paper proves that speci?city can also be optimal (by relaxing the budget-balance constraint) in settings with long-term contracting. Traders will opt for specificity when one trader makes a cross-investment and either (1) this cross-investment has a direct externality on the other trader, (2) both parties invest, or (3) private information is present. The specificity (e.g. from non- salvageable investments, specific assets and technologies, narrow business strategies, and exclusivity restrictions) is equally effective regardless of which trader's alternative trade payoff is reduced. Specificity supports long-term contracts in a broad range of settings - both with and without renegotiation. The theory also offers a novel perspective on franchising and vertical integration.
dc.language.iso eng
dc.relation.ispartofseries Economics and Business Working Papers Series; 799
dc.rights L'accés als continguts d'aquest document queda condicionat a l'acceptació de les condicions d'ús establertes per la següent llicència Creative Commons
dc.rights.uri http://creativecommons.org/licenses/by-nc-nd/3.0/es/
dc.title Specificity revisited: The role of cross-investments
dc.type info:eu-repo/semantics/workingPaper
dc.date.modified 2016-06-04T02:50:47Z
dc.subject.keyword Management and Organization Studies
dc.subject.keyword specificity
dc.subject.keyword hostages long-term contracting
dc.subject.keyword cross-investments
dc.subject.keyword budget-balance
dc.subject.keyword renegotiation
dc.rights.accessRights info:eu-repo/semantics/openAccess

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