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

Author

Listed:
  • Kang, Min-Ping

    (Shih Hsin U)

  • Mahoney, Joseph T.

    (U of Illinois at Urbana-Champaign)

  • Tan, Danchi

    (National Chengchi U)

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.

Suggested Citation

  • Kang, Min-Ping & Mahoney, Joseph T. & Tan, Danchi, 2007. "Why Firms Make Unilateral Investments Specific to Other Firms: The Case of OEM Suppliers," Working Papers 07-0110, University of Illinois at Urbana-Champaign, College of Business.
    • Handle: RePEc:ecl:illbus:07-0110
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    References listed on IDEAS

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    2. 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).
    3. Guillem Roig, 2018. "Investment and Market Structure in Common Agency Games," Documentos de Trabajo 16203, Universidad del Rosario.

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