Pre-trade private investments

• 成果类型: Article
• 署名作者: Dilme, Francesc
• 署名单位: University of Bonn
• 刊物名称: GAMES AND ECONOMIC BEHAVIOR
• ISSN/ISSBN: 0899-8256
• DOI: 10.1016/j.geb.2019.05.008
• 发表日期: 2019
• 页码: 98-119
• 关键词: Private investment; Hold up problem; price dispersion

摘要

This paper investigates the welfare effects of private investments prior to trade. A seller of a durable good can privately invest on changing its quality. After the investment, she receives a take-it-or-leave-it offer from a buyer. Both the seller and the buyer value more goods of higher quality. We obtain that, in equilibrium, the seller mixes the investment choice, adding adverse selection to the exchange. The non-observability of the investment diminishes the buyer's payoff without giving the seller additional rents. Notably, adding buyer competition exacerbates the adverse selection and completely eliminates the trade surplus. Partial observability increases the equilibrium investment, makes the seller better off, and reduces the payoff of the buyer. (C) 2019 Elsevier Inc. All rights reserved.