Dixit versus Williamson: the ‘fundamental transformation’ reconsidered

Comparing the literature on hold-up and strategic entry deterrence leads to a puzzling role for sunk or specific investments in affecting investor’s incentive. In one case, non-redeployable investments decrease investor’s ex-post bargaining power. In the other they increase it. When the entry deterr...

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Bibliographic Details
Published in:European journal of law and economics 2014-06, Vol.37 (3), p.439-453
Main Authors: Nicita, Antonio, Vatiero, Massimiliano
Format: Article
Language:English
Subjects:
Assets
Bargaining
Commercial Law
Competition
Contract law
Credibility
Deterrence
Economics
Economics and Finance
Enforcement
European Integration
Incentives
Incumbency
Investment
Investments
Investors
Law and Economics
Literature
Market structure
Public Finance
Studies
Threat
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Summary:Comparing the literature on hold-up and strategic entry deterrence leads to a puzzling role for sunk or specific investments in affecting investor’s incentive. In one case, non-redeployable investments decrease investor’s ex-post bargaining power. In the other they increase it. When the entry deterrence effect is acknowledged, the threat of hold-up against investor is largely weakened. Contrary to previous literature, in this respect, asset specificity may even constitute an endogenous enforcement device for incomplete contracts. We conclude that the impact of asset specificity on investor’s post-contractual power, far from being general, depends on the nature of interactions between contractual arrangements and market structure.
ISSN:0929-1261
1572-9990
1572-9346
DOI:10.1007/s10657-012-9299-2