Article ID Journal Published Year Pages File Type
5088083 Journal of Banking & Finance 2017 7 Pages PDF
Abstract
This paper examines a real option model where two vertically related firms are involved in a specific investment project that is subject to an uncertain payoff. While ex-post bargaining between a seller and a buyer leads to underinvestment by the seller in a standard model where timing of the seller's investment is exogenous, we show that this need not be the case when the seller's timing of investment is endogenous. However, bargaining with a buyer leads to excessive waiting. More severe holdup and higher uncertainty will lead to vertical integration of activities to avoid timing inefficiencies.
Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
Authors
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