This paper studies an incomplete contract framework in which specific investments affect parties’ outside options. We show that the ‘direction’ of standard hold-up in this new framework strictly depends on the impact generated by investments on ex-post parties’ outside options. This conclusion reverses some of the main results raised by the standard literature on incomplete contracts. Under given conditions, parties may even over-invest in assets specificity, as the changes induced in outside options improve their ex-post bargaining power. We discuss the implications for competition policy and for the management of incomplete contracts.
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|Titolo:||Managing Strategically Outside Options under Incomplete Contracts|
|Citazione:||Nicita, A. (2012). Managing Strategically Outside Options under Incomplete Contracts. JOURNAL OF INDUSTRY, COMPETITION & TRADE.|
|Appare nelle tipologie:||1.1 Articolo in rivista|