ABSTRACT
According to the holdup risk theory, the threat of an ex post opportunistic renegotiation of contractual agreement reduces incentives for specific investments. This chapter sheds light on the role that the competitive dimension of a transaction plays, in both the emergence of holdup risk and its remedies. In this respect, the holdup risk depends on an ex ante asymmetry of the market: while the investing transactor is locked in the transaction, the counterparty may credibly (threaten to) switch on alternatives in the outside spot market. Remedies à la Oliver Hart (the allocation of residual control rights) and à la Oliver Williamson (the process of fundamental transformation) are aimed at alleviating this asymmetry and reconfiguring ex post (transactors’ alternatives in) the outside market to reduce holdup risk. However, a trade-off between these remedies may and does emerge.
