Bargaining, bonding, and partial ownership

Dasgupta, Sudipto (2000) Bargaining, bonding, and partial ownership. International Economic Review, 41 (3). pp. 609-635. ISSN 0020-6598

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This article provides a theory of interfirm partial ownership. We consider a setting in which an upstream firm can make two alternative types of invest- ment: either specific investment that only a particular downstream firm can use or general investment that any downstream firm is capable of using. When the benefits from specific and general investments are both stochastic, equity partic-ipation by the downstream firm in the upstream firm can lead to more efficient outcomes than take-or-pay contracts. The optimal ownership stake of the down-stream firm is less than 50 percent under a natural assumption about relative bargaining power.

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Journal Article
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International Economic Review
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07 Jul 2015 12:36
Last Modified:
15 Sep 2023 00:19