On the efficiency of privately stipulated damages for breach of contract: entry barriers, reliance, and renegotiation

Article Abstract:

Reliance expenditures and renegotiation were introduced into a model of the role of stipulated damage provisions in inefficiently excluding competitors developed by P. Aghion and P. Bolton. Results showed that in the presence of a competitive entrant, a buyer and seller can achieve the first best via a simple stipulated damage contract equating damages to the efficient expectation damage. The inefficient strategic use of stipulated damages in the presence of a noncompetitive entrant occured despite the ability of the buyer and seller to renegotiate in the presence of noncontractible relationship-specific investments and observable seller costs.

Breach of contract

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Entry and competitive structure in deregulated airline markets: an event study analysis of People Express

Article Abstract:

The effects of People Express Airlines Inc's entry into the airline industry were studied. The specific factors examined were the changes in prices, scheduled services and stock valuation of other airlines. Data from Aviation Daily, The Wall Street Journal and The New York Times from 1984 to 1985 were analyzed. It was reported that the stock prices of incumbent airlines decreased by about 35% in response to People Express's entry while prices dropped by 15%. Surprisingly, the amount of scheduled service and sales increased in the aftermath of People Express's entry.

Air transportation, scheduled, Management, Economic aspects, Airlines, Industrial organization, People Express Airlines Inc.

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Incomplete contracts and signalling

Article Abstract:

A study was done to evaluate a principal-agent model which presents assymetric information leading to contractual incompleteness. Incompleteness may determine principal type with transactions costs available. Transactions costs may either be drafting costs or enforcement or verification costs. Results show that incomplete contracts are conditioned by assymetric information with either costs.

Analysis, Interpretation and construction, Contracts, Negotiation, Negotiations, Incompleteness theorems

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