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Hold-up problem - Wikipedia

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In economics, the hold-up problem is central to the theory of incomplete contracts, and shows the difficulty in writing complete contracts. A hold-up problem arises when two factors are present: The hold-up problem is a situation where two parties may be able to work most efficiently by cooperating but refrain from doing so because of concerns that they may give the other party increased bargaining power and thus reduce their own profits. When party A has made a prior commitment to a relationship with party B, the latter can 'hold up' the former for the value of that commitment. The hold-up problem leads to severe economic cost and might also lead to underinvestment. It is often argued that the possibility of a hold-up can lead to underinvestment in relation-specific investment and thus inefficiency. Underinvestment occurs because investors cannot guarantee themselves a sufficient share of the return through ex post bargaining.[2] Consequently, predictions of the outcome are very sensi

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