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Specific Investments, Flexible Adaptation, and Requirement Contracts

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  • Tian Zhu

Abstract

In a simple hold-up model with contractible cost-related variables, I show that an optimal requirement contract with "standard cost"--based nonlinear pricing can provide both ex post flexibility for adaptation and ex ante incentives for relationship-specific investments. The result is related to contractual arrangements observed in vertical procurement relationships. Copyright 2003, Oxford University Press.

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  • Tian Zhu, 2003. "Specific Investments, Flexible Adaptation, and Requirement Contracts," Economic Inquiry, Western Economic Association International, vol. 41(2), pages 299-304, April.
    • Handle: RePEc:oup:ecinqu:v:41:y:2003:i:2:p:299-304
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    File URL: http://hdl.handle.net/10.1093/ei/cbg009
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    Cited by:

    1. Dean V. Williamson, 2006. "Organization, Control and the Single Entity Defense in Antitrust," EAG Discussions Papers 200604, Department of Justice, Antitrust Division.

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