Susanne GoldlÃ¼cke and Patrick W. Schmitz
Journal of Economic Theory, Vol. 150, 2014, 683â€“708.
Abstract. Consider a seller who can make an observable but non-contractible investment to improve an intermediate good that is specialized to a particular buyer`s needs. The buyer then makes a take-it-or-leave-it offer to the seller. The seller has private information about the fraction of the ex post surplus that he can realize on his own. Compared to a situation with complete information, additional investment incentives are generated by the seller`s desire to pretend a strong outside option. On the other hand, ex post efficiency is not attained whenever the buyer mistakenly tries to call the seller`s bluff with a low offer.
The working paper version is available for download (CEPR Discussion Paper 8366).
The paper is available for download.