Advanced Search
MyIDEAS: Login to save this paper or follow this series

Buyer-Supplier Interaction, Asset Specificity, And Product Choice

Contents:

Author Info

  • Nisvan Erkal

Abstract

The goal of this paper is to explore how the demand for specific investments may affect the product variety in a bilateral duopolistic industry. In the literature on the hold-up problem, it is generally assumed that the degree of specificity of investments is either exogenously determined or chosen by the suppliers. We develop a model where the degree of specificity of investments is endogenously determined through the product choices of both buyers and suppliers. In an environment where input prices are determined by bilateral negotiations, we show that the existence of alternative buyers causes suppliers to choose less-than-fullyspecialized input types. Their location and investment choices crucially depend on the degree of product differentiation in the downstream market. This implies that the buyers may choose to increase their own competition by producing more similar products in order to increase the suppliers’ investment incentives. The results offer an explanation for why we may observe instances of intermediate product differentiation by focusing on the interactions between buyers and suppliers.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.economics.unimelb.edu.au/downloads/wpapers-03/885.pdf
Our checks indicate that this address may not be valid because: 404 Not Found (http://www.economics.unimelb.edu.au/downloads/wpapers-03/885.pdf [301 Moved Permanently]--> http://fbe.unimelb.edu.au/economics/downloads/wpapers-03/885.pdf). If this is indeed the case, please notify (Aminata Doumbia)
Download Restriction: no

Bibliographic Info

Paper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 885.

as in new window
Length: 47 pages
Date of creation: 2003
Date of revision:
Handle: RePEc:mlb:wpaper:885

Contact details of provider:
Postal: Department of Economics, The University of Melbourne, 4th Floor, FBE Building, Level 4, 111 Barry Street. Victoria, 3010, Australia
Phone: +61 3 8344 5355
Fax: +61 3 8344 6899
Email:
Web page: http://www.economics.unimelb.edu.au
More information through EDIRC

Related research

Keywords: asset specificity; vertical interactions; product differentiation;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Lynne Pepall & George Norman, 2001. "Product Differentiation and Upstream-Downstream Relations," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 10(2), pages 201-233, 06.
  2. Catherine C. de Fontenay & Joshua S. Gans, 2004. "Vertical Integration in the Presence of Upstream Competition," Department of Economics - Working Papers Series 904, The University of Melbourne.
  3. Joseph Farrell and Nancy T. Gallini., 1987. "Second-Sourcing as a Commitment: Monopoly Incentives to Attract Competition," Economics Working Papers 8760, University of California at Berkeley.
  4. Eaton, B Curtis & Schmitt, Nicolas, 1994. "Flexible Manufacturing and Market Structure," American Economic Review, American Economic Association, vol. 84(4), pages 875-88, September.
  5. Tomislav Vukina & Porametr Leegomonchai, 2006. "Oligopsony Power, Asset Specificity, and Hold-Up: Evidence from the Broiler Industry," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(3), pages 589-605.
  6. Andrea Shepard, 1987. "Licensing to Enhance Demand for New Technologies," RAND Journal of Economics, The RAND Corporation, vol. 18(3), pages 360-368, Autumn.
  7. Aghion, Philippe & Tirole, Jean, 1994. "The Management of Innovation," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 1185-1209, November.
  8. Paul Belleflamme & Eric Toulemonde, 2003. "Product differentiation in successive vertical oligopolies," Canadian Journal of Economics, Canadian Economics Association, vol. 36(3), pages 523-545, August.
  9. Hart, O. & Tirole, J., 1990. "Vertical Integration And Market Foreclosure," Working papers 548, Massachusetts Institute of Technology (MIT), Department of Economics.
  10. d'ASPREMONT, Claude & GABSZEWICZ, Jean J. & THISSE, Jacques-François, . "On Hotelling's "Stability in competition"," CORE Discussion Papers RP -385, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  11. Choi, J.P. & Yi, S.S., 1997. "Vertical Foreclosure with the Choice of Input Specifications," Discussion Paper 1997-16, Tilburg University, Center for Economic Research.
  12. Riordan, Michael H. & Williamson, Oliver E., 1985. "Asset specificity and economic organization," International Journal of Industrial Organization, Elsevier, vol. 3(4), pages 365-378, December.
  13. Aghion, Philippe & Tirole, Jean, 1994. "On the Management of Innovation," IDEI Working Papers 36, Institut d'Économie Industrielle (IDEI), Toulouse.
  14. Roman Inderst & Christian Wey, 2005. "Buyer Power and Supplier Incentives," Discussion Papers of DIW Berlin 464, DIW Berlin, German Institute for Economic Research.
  15. James W. Friedman & Jacques-Francois Thisse, 1993. "Partial Collusion Fosters Minimum Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 24(4), pages 631-645, Winter.
  16. de PALMA, A. & GINSBURGH, V. & PAPAGEOGIOU, Y.Y. & THISSE, J-F., . "The principle of minimum differentiation holds under sufficient heterogeneity," CORE Discussion Papers RP -640, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  17. Rhee, Byong-Duk, et al, 1992. "Restoring the Principle of Minimum Differentiation in Product Positioning," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(3), pages 475-505, Fall.
  18. Roman Inderst & Christian Wey, 2001. "Bargaining, Mergers, and Technology Choice in Bilaterally Oligopolistic Industries," CIG Working Papers FS IV 01-19, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  19. Oliver Hart & John Moore, 1998. "Foundations of Incomplete Contracts," NBER Working Papers 6726, National Bureau of Economic Research, Inc.
  20. Fujita, Masahisa & Thisse, Jacques-François, 1996. "Economics of Agglomeration," CEPR Discussion Papers 1344, C.E.P.R. Discussion Papers.
  21. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
  22. Jeffrey Church & Neil Gandal, 2000. "Systems Competition, Vertical Merger, and Foreclosure," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(1), pages 25-51, 03.
  23. John McLaren, 2000. ""Globalization" and Vertical Structure," American Economic Review, American Economic Association, vol. 90(5), pages 1239-1254, December.
  24. Helper, Susan & Levine, David I, 1992. "Long-Term Supplier Relations and Product-Market Structure," Journal of Law, Economics and Organization, Oxford University Press, vol. 8(3), pages 561-81, October.
  25. Rachel E. Kranton & Deborah F. Minehart, 1999. "Competition for Goods in Buyer-Seller Networks," Cowles Foundation Discussion Papers 1232, Cowles Foundation for Research in Economics, Yale University.
  26. Andrea Bonaccorsi & Paola Giuri, 2000. "The long term evolution of vertically-related industries," LEM Papers Series 2000/01, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  27. Gene M. Grossman & Elhanan Helpman, 2002. "Integration Versus Outsourcing In Industry Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 85-120, February.
  28. Arghya Ghosh & Hodaka Morita, 2006. "Platform Sharing in a Differentiated Duopoly," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(2), pages 397-429, 06.
  29. V. Krishnan & Karl T. Ulrich, 2001. "Product Development Decisions: A Review of the Literature," Management Science, INFORMS, vol. 47(1), pages 1-21, January.
  30. Williamson, Oliver E, 1983. "Credible Commitments: Using Hostages to Support Exchange," American Economic Review, American Economic Association, vol. 73(4), pages 519-40, September.
  31. Segal, Ilya, 1999. "Complexity and Renegotiation: A Foundation for Incomplete Contracts," Review of Economic Studies, Wiley Blackwell, vol. 66(1), pages 57-82, January.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Fan, Maoyong & Lee, Myoungki & Wu, Steven Y., 2004. "Balancing Grower Protection Against Agency Concerns: An Economic Analysis of Contract Termination Damages," 2004 Annual meeting, August 1-4, Denver, CO 20392, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  2. Noriaki Matsushima & Tomomichi Mizuno, 2009. "Input specificity and product differentiation," ISER Discussion Paper 0745, Institute of Social and Economic Research, Osaka University.
  3. Van Assche, Ari & Schwartz, Galina A., 2010. "Input specificity and global sourcing," Journal of the Japanese and International Economies, Elsevier, vol. 24(1), pages 69-85, March.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:mlb:wpaper:885. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Aminata Doumbia).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.