Switching costs and screening efficiency of incomplete contracts
Date
2000
Authors
Bac, M.
Editor(s)
Advisor
Supervisor
Co-Advisor
Co-Supervisor
Instructor
BUIR Usage Stats
0
views
views
22
downloads
downloads
Citation Stats
Series
Abstract
We study the role of switching costs in a dynamic buyer-seller relationship where quality is not contractible and the sellers retain private information about their quality-relevant abilities. In this environment buyer switching costs increase the seller's bargaining power in negotiations for the second contract, but they also induce the seller to improve quality during the first contract, in signalling his type. The overall effect is to enhance efficiency and increase the buyer's welfare. This beneficial effect stems from the link between quality, the buyer's posterior beliefs, and ex post distribution of bargaining power as a function of the switching cost. © Canadian Economics Association.
Source Title
Canadian Journal of Economics
Publisher
Wiley-Blackwell Publishing, Inc.
Course
Other identifiers
Book Title
Keywords
Degree Discipline
Degree Level
Degree Name
Citation
Permalink
Published Version (Please cite this version)
Collections
Language
English