Relationship-specific investment as a barrier to entry

Hiroshi Kitamura, Akira Miyaoka, Misato Sato

Research output: Contribution to journalArticle

1 Citation (Scopus)

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 languageEnglish
Pages (from-to)17-45
Number of pages29
JournalJournal of Economics/ Zeitschrift fur Nationalokonomie
Volume119
Issue number1
DOIs
Publication statusPublished - Sep 1 2016
Externally publishedYes

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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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