What does the hold-up problem do?

The hold-up problem is a situation where two parties may be able to work most efficiently by cooperating but refrain from doing so because of concerns that they may give the other party increased bargaining power and thus reduce their own profits.

What is hold-up in an alliance?

Hold-up – one firm makes more transaction-specific investments in an exchange than partner firms make and the firm that has not made these investments tries to exploit the firm that has made the investments. Describe the conditions under which a strategic alliance can be rare and costly to directly duplicate.

What is post investment hold-up in economics?

Hold-up arises when part of the return on an agent’s relationship-specific investments is ex post expropriable by his trading partner. Once such an investment is sunk, the investor has to share the gross returns with her trading partner. This problem, known as hold-up, is inherent in many bilateral exchanges.

What is relationship-specific investment?

According to the transaction cost theory (Williamson, 1985) relationship-specific investments defined as the degree to which assets are dedicated to a particular relationship create a lock-in situation for the investing party in inter- organizational relationships.

What is a hold up situation?

1. countable noun. A holdup is a situation in which someone is threatened with a weapon in order to make them hand over money or valuables.

What does holdup mean when cheating in an alliance?

In an alliance a holdup occurs when a firm that has not made significant transaction-specific investments demands returns from an alliance that are higher than what the partners agreed to when they created the alliance.

What is transactional cost theory?

Transaction cost theory (Williamson 1979, 1986) posits that the optimum organizational structure is one that achieves economic efficiency by minimizing the costs of exchange. The theory suggests that each type of transaction produces coordination costs of monitoring, controlling, and managing transactions.

What does relationship Specific mean?

Asset Specificity in Detail As noted earlier, a relationship specific investment is an investment which once made (sunk) by one or both parties to an ongoing trading relationship has a lower value in alternative uses than it has in the intended use supporting this specific bilateral trading relationship.

What does hold ups mean?

a delay that prevents something from happening: hold-up in sth Work is yet to start because of hold-ups in obtaining planning permission. (Definition of hold up from the Cambridge Business English Dictionary © Cambridge University Press)

How do you use hold up in a sentence?

to use or present someone or something as an example She’s always holding up her children as models of good behavior. His ideas were held up to ridicule.

What is the meaning of the hold up problem?

Hold-up arises when part of the return on an agent’s relationship-specific investments is ex postexpropriable by his trading partner. The hold-up problem has played an important role as a foundation of modern contract and organization theory, as the associated inefficiencies have justified many prominent organizational and contractual practices.

What causes a company to have a hold up?

Inefficiency is caused by the hold-up problem when B is reluctant to make the investment ex ante from the fear that S uses its extra bargaining power to its own advantage. In that case the supplier is ‘holding up’ the buyer.

How does the hold up problem affect the economy?

The hold-up problem leads to severe economic cost and might also lead to underinvestment. It is often argued that the possibility of a hold-up can lead to underinvestment in relation-specific investment and thus inefficiency.

Is it better not to invest due to a hold up?

In the first treatment it is optimal to invest even if there is a hold-up while in the second treatment it is better not to invest due to the hold-up. We choose this set-up because it allows students first to learn that there will be a hold-up and then to experience the economic consequence of underinvestment caused by the hold-up problem.