a basic idea of price - offer matching clauses vince -
here is the basic idea i was alluding to :
suppose a car dealer promised to " match any advertised price . " then his
competitor would feel the need to respond in kind . and so on , until all
dealers advertised they would " match any advertised price . " now , consider one
of these dealer ' s decision to perhaps lower his prices . if he does so ,
everyone will immediately match his price , so his market share will remain
unchanged , at whatever it was before , but his revenues ( and all other dealers
as well ) would be lowered by the amount of his price reduction . so , the
dealer rationally decides not to lower his prices to try to sell more cars .
now , suppose a limited partnership , where the partners contract to " control "
who they are in business with , by putting a " right of first refusal " clause
into the partnership ' s papers , whereby any partner wishing to sell his
interests must offer the remaining partners the right to match any offer the
partner received from outside for his shares . now , suppose you are an
outsider , considering doing your due diligence in the thought you might want
to buy into the partnership . you know if your offer is a " good " one from your
perspective , offering you the prospects of a fair rate of return , the
existing partners will match it , and you will get nothing in the deal but you
will have paid , from your own pocket , for your due diligence . conversely , if
you offer too much for the shares , then the other partners will not match
your offer and you will then realize you overpaid . in neither case can you
credibly assume you know more about the business than do the current
partners . so , you ( basically ) don ' t make an offer . so , a partner ' s shares
are seriously devalued by his partners having the right to match any offers
he receives for them . the " right of first refusal " clause precludes
economically efficient rebalancing of portfolios by rendering the shares
( essentially ) illiquid .
clayton