Dynamics of Firm–Supplier Relationships in a Less Developed Economy: Evidence from African Manufacturing Firms
In this paper, we study supplier–firm interactions to explain firms' outsourcing relationships. We show that in an imperfect information setup a firm learns about the quality of its suppliers through repeated interaction. As the firm determines the suppliers' quality with greater precision, it gives a greater proportion of its contracts to these “better” suppliers. We report evidence from African manufacturing firms that is consistent with our hypothesis: both frequency and volume of transactions increase with the length of a firm's relationship with its supplier. These effects are stronger in poor contracting environments.
|Date of creation:||Feb 2004|
|Date of revision:||Apr 2005|
|Publication status:||Published in Southern Economic Journal, Vol. 72, No. 2|
|Contact details of provider:|| Postal: |
Web page: http://business.fau.edu/economics
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