SEMINAIRE DE RECHERCHE EN ECONOMIE - GATE Lyon Saint-Etienne : Desmond Lo

Desmond Lo, Santa Clara University présentera un séminaire intitulé : Contracting to Dis-Incentivize.

Thème de recherche / Main topics : Contracting and Organizational Governance, Distribution Channels, Econometrics.

Résumé / abstract  : Research in collaborative ties has pre-dominantly focused on studying how governance forms balance the potential gains against transaction hazards within that relationship. Using an incomplete contracting approach, we develop a theoretical model of OEM-component supplier interaction that shows how the buyer – the OEM – trades off gains obtained from within the supplier relationship against protecting its own valuable resources that outside the relationship. Our model shows that OEMs with high level of such valuable but appropriable resources prefer closed-price contracts over open-price contracts to dis-incentivize suppliers from investing in capabilities that may facilitate the appropriation of the OEM’s resources. Consistent with our model, but not with alternative theories, our data on procurement contracts show that OEMs tend to use closed-price contracts when their pre-existing resources are high. The use of closed-price contracts reduces both the supplier’s dedicated investment and adaptation effort and the OEM’s profitability and end-product gains. Our work provides evidence on how parties, cognizant of the “dark side” of relationships, strategically trade off safeguarding pre-existing resources against creating value within inter-organizational relationships.

Desmond Lo

Contracting to Dis-Incentivize

Co-authors : Giorgio Zanarone (CUNEF) & Mrinal Ghosh (University of Arizona).