In an important paper, Aghion and Bolton (1987) argue that a buyer and a seller may agree on high liquidation damages in order to extract rents from future suppliers. As this may distort future trade, it may be socially wasteful. We argue that Aghion and Bolton's analysis is incomplete in some...

Local network externalities are present when the utility of buying from a firm not only depends on the number of other customers (global network externalities), but also on their identity and/or characteristics. We explore the consequences of local network externalities within a framework where...

This Paper explores how the government’s choice of renewal policy in public procurement programmes can be used as a mechanism to provide firms with incentives to supply quality. Several firms produce a public service. The firms participate in a tournament where they are ranked according to the...