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Dixit versus Williamson: the ‘fundamental transformation’ reconsidered

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  • Antonio Nicita
  • Massimiliano Vatiero

Abstract

Comparing the literature on hold-up and strategic entry deterrence leads to a puzzling role for sunk or specific investments in affecting investor’s incentive. In one case, non-redeployable investments decrease investor’s ex-post bargaining power. In the other they increase it. When the entry deterrence effect is acknowledged, the threat of hold-up against investor is largely weakened. Contrary to previous literature, in this respect, asset specificity may even constitute an endogenous enforcement device for incomplete contracts. We conclude that the impact of asset specificity on investor’s post-contractual power, far from being general, depends on the nature of interactions between contractual arrangements and market structure. Copyright Springer Science+Business Media, LLC 2014

Suggested Citation

  • Antonio Nicita & Massimiliano Vatiero, 2014. "Dixit versus Williamson: the ‘fundamental transformation’ reconsidered," European Journal of Law and Economics, Springer, vol. 37(3), pages 439-453, June.
    • Handle: RePEc:kap:ejlwec:v:37:y:2014:i:3:p:439-453
    DOI: 10.1007/s10657-012-9299-2
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    Cited by:

    1. Massimiliano Vatiero, 2018. "Transaction and transactors’ choices: what we have learned and what we need to explore," Chapters, in: Claude Ménard & Mary M. Shirley (ed.), A Research Agenda for New Institutional Economics, chapter 11, pages 97-108, Edward Elgar Publishing.
    2. Antonio Nicita, 2013. "Managing Strategically Outside Options under Incomplete Contracts," Journal of Industry, Competition and Trade, Springer, vol. 13(3), pages 361-374, September.
    3. Massimiliano Vatiero, 2018. "Smart contracts and transaction costs," Discussion Papers 2018/238, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.
    4. Hanna Almlöf & Per-Olof Bjuggren, 2019. "A regulation and transaction cost perspective on the design of corporate law," European Journal of Law and Economics, Springer, vol. 47(3), pages 407-433, June.

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    More about this item

    Keywords

    Fundamental transformation; Asset-specificity; Entry deterrence; D23; L12;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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