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Direct and Indirect Bargaining Costs and the Scope of the Firm

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Author Info
Duncan Simester (Massachusetts Institute of Technology)
Marc Knez (Sibson Consulting)
Abstract

We compare bargaining costs with internal and external suppliers using a unique data set describing internal and external transactions for the same categories of parts at a single firm. The findings confirm that direct bargaining costs are higher with external suppliers, at least in part because there is more to bargain over. We also observed higher indirect bargaining costs with external suppliers. Information that may hinder contractual negotiations is often suppressed or delayed. To enforce these restrictions, all communication with external suppliers passes through procurement personnel, greatly hindering coordination and contributing to the determination of which parts are made internally.

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File URL: http://www.journals.uchicago.edu/cgi-bin/resolve?JB750203
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Publisher Info
Article provided by University of Chicago Press in its journal Journal of Business.

Volume (Year): 75 (2002)
Issue (Month): 2 (April)
Pages: 283-304
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:ucp:jnlbus:v:75:y:2002:i:2:p:283-304

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Postal: The University of Chicago Press, Journals Division, P.O. Box 37005 Chicago, IL 60637
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  3. Wernerfelt, Birger, 2003. "Organizational Languages," Working papers 4278-03, Massachusetts Institute of Technology (MIT), Sloan School of Management. [Downloadable!]
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  4. Wernerfelt, Birger, 2003. "Resources, Adjustments, and Diversification: Evidence from Production Functions," Working papers 4277-03, Massachusetts Institute of Technology (MIT), Sloan School of Management. [Downloadable!]
  5. Crémer, Jacques & Garicano, Luis & Prat, Andrea, 2004. "Codes in Organizations," CEPR Discussion Papers 4205, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  6. Jacques Cremer & Luis Garicano & Andrea Prat, 2006. "Language and the Theory of the Firm," Levine's Bibliography 784828000000000373, UCLA Department of Economics. [Downloadable!]
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  7. Steven Globerman & Aidan Vining, 2004. "The Outsourcing Decision: A Strategic Framework," International Trade 0404007, EconWPA. [Downloadable!]
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