Why Firms Make Unilateral Investments Specific to Other Firms: The Case of OEM Suppliers

Min-Ping Kang, Joseph T. Mahoney and Danchi Tan
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Min-Ping Kang: Shih Hsin U
Joseph T. Mahoney: U of Illinois at Urbana-Champaign
Danchi Tan: National Chengchi U

Working Papers from University of Illinois at Urbana-Champaign, College of Business

Abstract: This paper examines why and under what conditions firms will make unilateral relationship-specific investments to serve their transaction partners. We propose that firms are more likely to make unilateral relationship-specific investments when the investment yields economic spillover values for other transactions with the same exchange partners as well as for third-party transactions. We also model two types of positive inter-project spillover effects that a transaction may generate: knowledge spillovers and reputation spillovers. We find empirical support for our developed theory in the context of Taiwanese suppliers of Original Equipment Manufacturers.

Date: 2007
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Citations: View citations in EconPapers (4)

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