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Negotiating cultures in corporate procurement

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  • Rosar, Frank
  • Mueller, Florian

Abstract

In a repeated procurement problem, the incumbent can undertake a relationship-specific investment that generates opportunity costs of switching for the buyer. We investigate the impact of the negotiating culture on investment incentives, favoritism in the procurement contract allocation, and buyer profit. We compare a stylized competitive negotiating culture with a stylized protective culture. The cultures differ in the way the buyer uses the entrance threat to exert pressure on the incumbent. Our main result is that the relative performance of the cultures depends non-monotonically on the expensiveness of the investment.

Suggested Citation

  • Rosar, Frank & Mueller, Florian, 2015. "Negotiating cultures in corporate procurement," Journal of Economic Behavior & Organization, Elsevier, vol. 117(C), pages 259-280.
    • Handle: RePEc:eee:jeborg:v:117:y:2015:i:c:p:259-280
    DOI: 10.1016/j.jebo.2015.06.012
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    More about this item

    Keywords

    Repeated procurement; Mechanism design; Optimal auction; Limited commitment; Hold-up; Asymmetric information;
    All these keywords.

    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
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L62 - Industrial Organization - - Industry Studies: Manufacturing - - - Automobiles; Other Transportation Equipment; Related Parts and Equipment

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