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Managing Switching Costs In Multiperiod Procurements With Strategic Buyers

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  • Tracy R. Lewis
  • Huseyin Yildirim

Abstract

This article examines the use of switching costs by long-lived strategic buyers to manage dynamic competition between rival suppliers. The analysis reveals how buyers may employ switching costs to their advantage. We show that when switching costs are high, a buyer may induce suppliers to price more competitively by credibly threatening to replace the incumbent supplier with his rivals. The implications of this finding for adoption of technology and firm organization are explored in settings in which the buyer is integrated with the suppliers and where the buyer is an outsourcer. Copyright 2005 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

Suggested Citation

  • Tracy R. Lewis & Huseyin Yildirim, 2005. "Managing Switching Costs In Multiperiod Procurements With Strategic Buyers ," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(4), pages 1233-1269, November.
  • Handle: RePEc:ier:iecrev:v:46:y:2005:i:4:p:1233-1269
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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-2354.2005.00366.x
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    Cited by:

    1. Rosar, Frank & Mueller, Florian, 2014. "Negotiating cultures in corporate procurement," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100599, Verein für Socialpolitik / German Economic Association.
    2. David Besanko & Ulrich Doraszelski, 2005. "Learning-by-Doing, Organizational Forgetting, and Industry Dynanmics," Computing in Economics and Finance 2005 236, Society for Computational Economics.
    3. repec:eee:proeco:v:196:y:2018:i:c:p:150-162 is not listed on IDEAS
    4. Rosar, Frank & Mueller, Florian, 2015. "Negotiating cultures in corporate procurement," Journal of Economic Behavior & Organization, Elsevier, vol. 117(C), pages 259-280.

    More about this item

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm

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