TY - JOUR
T1 - If you are offered the Right of First Refusal, should you accept?
T2 - An investigation of contract design
AU - Grosskopf, B.
AU - Roth, A.E.
N1 - Copyright 2009 Elsevier B.V., All rights reserved.
PY - 2009/1/1
Y1 - 2009/1/1
N2 - Rights of first refusal are contract clauses intended to provide the holder of a license or lease with some protection when the contract ends. The simplest version gives the right holder the ability to act after potential competitors. However, another common implementation requires the right holder to accept or reject some offers before potential competitors are given the same offer, and, if the right holder rejects the initial offer, allows the right to be exercised affirmatively only if competitors are subsequently offered a better deal (e.g. a lower price). We explore, theoretically and experimentally, the impact this latter form of right of first refusal can have on the outcome of negotiation. Counterintuitively, this "right" of first refusal can be disadvantageous to its holder. This suggests that applied contract design may benefit from the same kind of attention to detail that has begun to be given to practical market design.
AB - Rights of first refusal are contract clauses intended to provide the holder of a license or lease with some protection when the contract ends. The simplest version gives the right holder the ability to act after potential competitors. However, another common implementation requires the right holder to accept or reject some offers before potential competitors are given the same offer, and, if the right holder rejects the initial offer, allows the right to be exercised affirmatively only if competitors are subsequently offered a better deal (e.g. a lower price). We explore, theoretically and experimentally, the impact this latter form of right of first refusal can have on the outcome of negotiation. Counterintuitively, this "right" of first refusal can be disadvantageous to its holder. This suggests that applied contract design may benefit from the same kind of attention to detail that has begun to be given to practical market design.
UR - http://www.scopus.com/inward/record.url?partnerID=yv4JPVwI&eid=2-s2.0-58149460395&md5=ceb39a33927b976a047b8520b62f1ff7
U2 - 10.1016/j.geb.2007.10.013
DO - 10.1016/j.geb.2007.10.013
M3 - Article
AN - SCOPUS:58149460395
SN - 0899-8256
VL - 65
SP - 176
EP - 204
JO - Games and Economic Behaviour
JF - Games and Economic Behaviour
IS - 1
ER -