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What factors determine the number of trading partners?

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  • Matsushima, Noriaki
  • Shinohara, Ryusuke

Abstract

The purpose of this paper is to provide a simple model to explain buyer–supplier relationships and identify factors that determine the chosen number of trading partners. We show that the optimal number of partners for a supplier is small, if it has low bargaining power, moderate economies of scope in variable costs, and large sunk investment. We extend the model by incorporating the supplier's quality investment and show that the investment level can be higher when the number of trading partners is small. The results may be consistent with the formation of Japanese buyer–supplier relations.

Suggested Citation

  • Matsushima, Noriaki & Shinohara, Ryusuke, 2014. "What factors determine the number of trading partners?," Journal of Economic Behavior & Organization, Elsevier, vol. 106(C), pages 428-441.
  • Handle: RePEc:eee:jeborg:v:106:y:2014:i:c:p:428-441
    DOI: 10.1016/j.jebo.2014.07.014
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    Citations

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    Cited by:

    1. Kitamura, Hiroshi & Matsushima, Noriaki & Sato, Misato, 2018. "Exclusive contracts with complementary inputs," International Journal of Industrial Organization, Elsevier, vol. 56(C), pages 145-167.
    2. Noriaki Matsushima & Laixun Zhao, 2015. "Multimarket Linkages, Trade and the Productivity Puzzle," Review of International Economics, Wiley Blackwell, vol. 23(1), pages 1-13, February.
    3. You, Jing & Imai, Katsushi S. & Gaiha, Raghav, 2016. "Declining Nutrient Intake in a Growing China: Does Household Heterogeneity Matter?," World Development, Elsevier, vol. 77(C), pages 171-191.
    4. Noriaki Matsushima & Laixun Zhao, 2015. "Strategic dual sourcing as a driver for free revealing of innovation," ISER Discussion Paper 0936, Institute of Social and Economic Research, Osaka University.
    5. Yamada, Mai, 2016. "The Optimal Trading Partner for an Upstream Monopolist," MPRA Paper 70325, University Library of Munich, Germany.
    6. Noriaki Matsushima & Ryusuke Shinohara, 2015. "The efficiency of monopolistic provision of public goods through simultaneous bilateral bargaining," ISER Discussion Paper 0948, Institute of Social and Economic Research, Osaka University.
    7. Noriaki Matsushima & Ryusuke Shinohara, 2015. "Pre-negotiation commitment and internalization in public good provision through bilateral negotiations," ISER Discussion Paper 0948r, Institute of Social and Economic Research, Osaka University, revised Aug 2017.
    8. repec:taf:raaexx:v:24:y:2017:i:3-4:p:464-484 is not listed on IDEAS
    9. 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).
    10. Noriaki Matsushima, 2017. "Expanding distribution channels," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 24(3-4), pages 464-484, October.

    More about this item

    Keywords

    Buyer; Supplier; Investment; Economies of scope;

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • M11 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Production Management
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory

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