TY - JOUR
AU - Sundaram, Rangarajan K.
AB - This paper analyzes rights of first refusal and rights of first offer in a multiple-buyer, sequential bargaining setting. A right of first refusal entitles the right-holder to purchase a subject asset on the same terms as those accepted by a third party. A right of first offer requires a seller to first offer the right-holder to buy a subject asset and prohibits the seller from subsequently selling the asset to a third party on better terms than those offered to the right-holder. We examine when and how such rights yield benefits to, or impose costs, on the right-holder and the seller. We show that a right of first refusal transfers value from other buyers to the right-holder, but may also force the seller to make suboptimal offers. A right of first offer induces the seller to lower his first-period offer, which will tend to increase the net surplus to the seller and right-holder, but also forces the seller to make suboptimal subsequent offers. We find conditions under which it is in the ex ante interest of the seller and the right-holder to contract for a right of first refusal or a right of first offer, respectively.
TI - First-Purchase Rights: Rights of First Refusal and Rights of First Offer
JF - American Law and Economics Review
DO - 10.1093/aler/ahs014
DA - 2012-12-10
UR - https://www.deepdyve.com/lp/oxford-university-press/first-purchase-rights-rights-of-first-refusal-and-rights-of-first-zD6auhLL0U
SP - 331
EP - 371
VL - 14
IS - 2
DP - DeepDyve
ER -