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

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Author Info

  • Kang, Min-Ping

    (Shih Hsin U)

  • Mahoney, Joseph T.

    (U of Illinois at Urbana-Champaign)

  • Tan, Danchi

    (National Chengchi U)

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    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.

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    File URL: http://www.business.illinois.edu/Working_Papers/papers/07-0110.pdf
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    Bibliographic Info

    Paper provided by University of Illinois at Urbana-Champaign, College of Business in its series Working Papers with number 07-0110.

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    Date of creation: 2007
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    Handle: RePEc:ecl:illbus:07-0110

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    Web page: http://www.business.uiuc.edu/Working_Papers/Main.asp
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    1. Kirti Sawhney Celly & Robert E Spekman & John W Kamauff, 1999. "Technological Uncertainty, Buyer Preferences and Supplier Assurances: An Examination of Pacific Rim Purchasing Arrangements," Journal of International Business Studies, Palgrave Macmillan, vol. 30(2), pages 297-316, June.
    2. Jér�me Barthélemy & Bertrand V. Quélin, 2006. "Complexity of Outsourcing Contracts and "Ex Post" Transaction Costs: An Empirical Investigation," Journal of Management Studies, Wiley Blackwell, vol. 43(8), pages 1775-1797, December.
    3. Kentaro Nobeoka & Jeffrey H Dyer & Anoop Madhok, 2002. "The Influence of Customer Scope on Supplier Learning and Performance in the Japanese Automobile Industry," Journal of International Business Studies, Palgrave Macmillan, vol. 33(4), pages 717-736, December.
    4. Kyle J. Mayer & Jack A. Nickerson & Hideo Owan, 2004. "Are Supply and Plant Inspections Complements or Substitutes? A Strategic and Operational Assessment of Inspection Practices in Biotechnology," Management Science, INFORMS, vol. 50(8), pages 1064-1081, August.
    5. Akbar Zaheer & N. Venkatraman, 1994. "Determinants of Electronic Integration in the Insurance Industry: An Empirical Test," Management Science, INFORMS, vol. 40(5), pages 549-566, May.
    6. Klein, Benjamin & Leffler, Keith B, 1981. "The Role of Market Forces in Assuring Contractual Performance," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 615-41, August.
    7. Williamson, Oliver E, 1983. "Credible Commitments: Using Hostages to Support Exchange," American Economic Review, American Economic Association, vol. 73(4), pages 519-40, September.
    8. Hoetker, Glenn, 2002. "How Much You Know versus How Well I Know You: Selecting a Supplier for a Technically Innovative Component," Working Papers 02-0106, University of Illinois at Urbana-Champaign, College of Business.
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    Cited by:
    1. Roig, Guillem, 2014. "What Determines Market Structure? An Explanation from Cooperative Investment with Non‐Exclusive Co," TSE Working Papers 14-482, Toulouse School of Economics (TSE).

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