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ABSTRACT:
This paper makes two contributions in the context of seller-buyer relationships with bilateral relationship-specific investment. Firstly, we demonstrate how ex-post negotiations via double auctions can be used to alleviate and often resolve the hold-up problem. Secondly, we show that ex-post participation constraints make the hold-up problem unavoidable in environments where (i) production costs are relatively high compared to valuations and (ii) the trade price is independent of the investment levels.

SUGGESTED CITATION:
Thomas Troger, "Double Auctions, Ex-Post Participation Constraints, and the Hold-Up Problem" (October 3, 2002). Department of Economics, UCSB. Departmental Working Papers. Paper wp19-02.
http://repositories.cdlib.org/ucsbecon/dwp/wp19-02