Journal of Financial Intermediation Vol. 2 No. 1 1992
Financial contracts as lasting commitments: The case of a leveraged oligopoly
Abstract
The commitment value of financial contracts is limited by the ability of contracting parties to renegotiate them away, if it becomes mutually beneficial to do so. When debt contracts are used by oligopolistic firms to commit to aggressive output strategies as in Brander-Lewis, we show that renegotiation may undermine commitment under symmetric information, but not generally under asymmetric information. Lasting contracts that survive renegotiation are proposed. It is shown that there exist lasting debt contracts which preserve the commitment value and in which not all debt is renegotiated away.
- DOI
- 10.1016/1042-9573(92)90018-9
- Volume
- 2
- Issue
- 1
- Pages
- 2-32
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref