Double Auctions, Ex-Post Participation Constraints, and the Hold-Up Problem

This paper makes two contributions in the context of seller-buyer relationships with bilateral relationship-speciï¬c investment. Firstly, we demonstrate how ex-post negotiations via double auctions can be used to alleviate and often resolve the hold-up problem. Secondly, we show that ex-post participation constraints make the hold-up problem unavoidable in environments where (i)pro duction costs are relatively high compared to valuations and (ii)the trade price is independent of the investment levels.