Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/322848 
Year of Publication: 
2011
Series/Report no.: 
Discussion Papers Series No. 11-06
Publisher: 
Utrecht University, Utrecht School of Economics, Tjalling C. Koopmans Research Institute, Utrecht
Abstract: 
We analyze the effect of liquidated damage rules in exclusive contracts that are negotiated in a sequential bargaining process between one seller and two buyers with endogenous outside options. We show that assumptions on the distribution of bargaining power influence the size of the payment of damages and determine which contractual party benefits from including liquidated damage rules. Furthermore, we show that the effect of the payment of damages on the efficiency of the consummated deals depends on the possibility to sign more than one contract. Only if this is not possible, damage rules may prevent the breaking and entering of contracts and thus lead to inefficient deals in the market of corporate control, or allow for 'naked' exclusion in the context of supplier contracts with externalities.
Subjects: 
sequential bargaining
bargaining power
outside option
liquidated damage rules
termination fees
exclusivity agreements
Document Type: 
Working Paper

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