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Partial Ownership Induces Customised Investments under Repeated Interaction: An Explanation of Japanese Manufacturer-Suppliers Relationships

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  • Morita, Hodaka

Abstract

A dominant manufacturing firm often holds partial shares of its suppliers, and the suppliers are willing to make investments customised to the manufacturer. Furthermore, this type of manufacturer-suppliers relationship is often long-term and stable. This paper provides an explanation for this phenomenon by modelling repeated interaction between a downstream manufacturer and upstream suppliers. In the model, the manufacturer could avoid, by partially owning a supplier, hold-up problems which would arise from the supplier's customised investment. The model distinguishes between two sources of appropriable quasi-rents, and yields new empirical predictions concerning the relationship between appropriable quasi-rents and vertical integration. Copyright 2001 by Scottish Economic Society.

Suggested Citation

  • Morita, Hodaka, 2001. "Partial Ownership Induces Customised Investments under Repeated Interaction: An Explanation of Japanese Manufacturer-Suppliers Relationships," Scottish Journal of Political Economy, Scottish Economic Society, vol. 48(3), pages 345-359, August.
    • Handle: RePEc:bla:scotjp:v:48:y:2001:i:3:p:345-59
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    Cited by:

    1. Morita, Hodaka & Nakahara, Hirohiko, 2004. "Impacts of the information-technology revolution on Japanese manufacturer-supplier relationships," Journal of the Japanese and International Economies, Elsevier, vol. 18(3), pages 390-415, September.
    2. Hideshi Itoh & Hodaka Morita, 2015. "Formal Contracts, Relational Contracts, and the Threat-Point Effect," American Economic Journal: Microeconomics, American Economic Association, vol. 7(3), pages 318-346, August.
    3. Greenlee, Patrick & Raskovich, Alexander, 2006. "Partial vertical ownership," European Economic Review, Elsevier, vol. 50(4), pages 1017-1041, May.
    4. Shohei Yoshida, 2015. "Multiproduct competition in vertically related industries," ISER Discussion Paper 0935, Institute of Social and Economic Research, Osaka University.
    5. Jota Ishikawa & Yoichi Sugita & Laixun Zhao, 2011. "Commercial Policy and Foreign Ownership," Review of International Economics, Wiley Blackwell, vol. 19(2), pages 300-312, May.

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