 The value of cooperative investment in nonexclusive contractsNo 18208, Documentos de Trabajo from Universidad del Rosario Abstract: This article examines the incentives for a buyer to undertake relationship-specific investment in the presence of multiple suppliers who provide a homogeneous input. When multiple suppliers compete for a single buyer, the buyer’s investment affects its outside option in the event of a relationship breakdown. Relationship-specific investment with a supplier thus reduces the buyer’s outside option, were there to be a supply breakdown with this supplier, but increases the buyer’s outside option with respect to a supply breakdown of competing suppliers. The extent to which suppliers offer trading contracts designed to substitute the trade loss from a relationship breakdown, therefore shapes the changes in the buyer’s outside option and its incentives to invest. The present paper shows that introducing competition to one side of the market reduces the hold-up problem associated with relationship-specific investment and establishes conditions where investment does not materialize. Keywords: Specific investment; Outside option; Relationship breakdown (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:col:000092:018208 Access Statistics for this paper More papers in Documentos de Trabajo from Universidad del Rosario Contact information at EDIRC. |
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