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Efficiency effects of regulations on unfair subcontracting behaviors

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  • Yang, Yonghyeong

Abstract

This paper investigates the efficiency effects of governing vertical relationships by analyzing the incentives of firms to engage in exclusive contracts. In particular, the analysis focuses on the subcontracting context. When a downstream firm possesses a superior bargaining position, upstream subcontractors do not prefer an exclusive contract, even when it is efficient, as such a contract lowers their bargaining power even further, ultimately leading to lower profits. It can therefore enhance efficiency to encourage upstream firms to engage in an exclusive contract by limiting bargaining power abuses by superior downstream firms. The paper discusses the required flexibility of such a regulation as well as the evaluation of the current regulation based on the analysis.

Suggested Citation

  • Yang, Yonghyeong, 2025. "Efficiency effects of regulations on unfair subcontracting behaviors," KDI Journal of Economic Policy, Korea Development Institute (KDI), vol. 47(3), pages 89-114.
    • Handle: RePEc:zbw:kdijep:330704
    DOI: 10.23895/kdijep.2025.47.3.89
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    References listed on IDEAS

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    1. David E. Mills, 2017. "Buyer‐Induced Exclusive Dealing," Southern Economic Journal, John Wiley & Sons, vol. 84(1), pages 66-81, July.
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    Keywords

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    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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