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Bargaining, Bonding, and Partial Ownership
Author(s) -
Dasgupta Sudipto,
Tao Zhigang
Publication year - 2000
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/1468-2354.00078
Subject(s) - downstream (manufacturing) , bargaining power , upstream (networking) , equity (law) , investment (military) , microeconomics , business , industrial organization , economics , marketing , computer network , politics , computer science , political science , law
This article provides a theory of interfirm partial ownership. We consider a setting in which an upstream firm can make two alternative types of investment: 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 participation 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 downstream firm is less than 50 percent under a natural assumption about relative bargaining power.