Negotiating cultures in corporate procurement

Frank Rosar and Florian Mueller

Journal of Economic Behavior & Organization, 2015, vol. 117, issue C, 259-280

Abstract: In a repeated procurement problem, the incumbent can undertake a relationship-specific investment that generates opportunity costs of switching for the buyer. We investigate the impact of the negotiating culture on investment incentives, favoritism in the procurement contract allocation, and buyer profit. We compare a stylized competitive negotiating culture with a stylized protective culture. The cultures differ in the way the buyer uses the entrance threat to exert pressure on the incumbent. Our main result is that the relative performance of the cultures depends non-monotonically on the expensiveness of the investment.

Keywords: Repeated procurement; Mechanism design; Optimal auction; Limited commitment; Hold-up; Asymmetric information (search for similar items in EconPapers)
JEL-codes: C73 D44 D82 L62 (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:117:y:2015:i:c:p:259-280

DOI: 10.1016/j.jebo.2015.06.012

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