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A Rent Extraction Theory of Right of First Refusal

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  • Albert Choi

Abstract

When a seller gives a buyer a right of first refusal, although it reduces the competing buyers' profits and creates an inefficiency, it always increases the joint profit of the seller and the right holder. Right of first refusal with a consideration (e.g., a payment from the right holder to the seller) allows the seller and the right holder to extract more surplus from the competing buyers

Suggested Citation

  • Albert Choi, 2004. "A Rent Extraction Theory of Right of First Refusal," Econometric Society 2004 Far Eastern Meetings 759, Econometric Society.
    • Handle: RePEc:ecm:feam04:759
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    File URL: http://repec.org/esFEAM04/up.6664.1080930716.pdf
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    References listed on IDEAS

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      • McAfee, R. Preston & McMillan, John., 1990. "Bidding Rings," Working Papers 726, California Institute of Technology, Division of the Humanities and Social Sciences.
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    More about this item

    Keywords

    Right of first refusal; bargaining; auctions;
    All these keywords.

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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