Abstract
This study constructs a model of a relationship-specific investment in a dynamic framework. Although such investment decreases operating costs and increases the current joint profits of firms in vertical relationships, its specificity reduces the ex-post flexibility to change a trading partner in the future. We demonstrate that whether the investment contract deters entry even in the absence of exclusionary terms depends on not only the specificity but also the efficiency of the investment. We also show that an increase in the investment efficiency does not necessarily improve the equilibrium social welfare.
| Original language | English |
|---|---|
| Pages (from-to) | 17-45 |
| Number of pages | 29 |
| Journal | Journal of Economics/ Zeitschrift fur Nationalokonomie |
| Volume | 119 |
| Issue number | 1 |
| DOIs | |
| Publication status | Published - Sep 1 2016 |
| Externally published | Yes |
Keywords
- Entry deterrence
- Relationship-specific investment
- Switching costs
- Vertical relation
ASJC Scopus subject areas
- Business, Management and Accounting(all)
- Economics and Econometrics
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Cite this
Kitamura, H., Miyaoka, A., & Sato, M. (2016). Relationship-specific investment as a barrier to entry. Journal of Economics/ Zeitschrift fur Nationalokonomie, 119(1), 17-45. https://doi.org/10.1007/s00712-016-0482-8