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Mitigating Procurement Hazards in the Context of Innovation

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  • de Figueiredo, John M
  • Teece, David J

Abstract

This paper extends the transaction cost economics framework to examine the contractual hazards that arise in the course of technological innovation. We identify three main strategic hazards related to future technological opportunities that may develop in business transactions: loss of technological pacing possibilities on the technological frontier, loss of technological control at or behind the frontier, and design omissions. In examining these hazards we focus on the increasingly common phenomenon of vertically integrated firms supplying downstream competitors. We then analyze how constellations of safeguards, particularly relational safeguards, can augment transaction-specific safeguards in many instances to ensure high-powered incentives are maintained. We also consider under what conditions downstream divestiture is a desirable economizing option. Supportive illustrations are drawn from the desktop laser printer and telecommunications industries.
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Suggested Citation

  • de Figueiredo, John M & Teece, David J, 1996. "Mitigating Procurement Hazards in the Context of Innovation," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 5(2), pages 537-559.
    • Handle: RePEc:oup:indcch:v:5:y:1996:i:2:p:537-59
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    Cited by:

    1. Wang, I. Kim & Seidle, Russell, 2017. "The degree of technological innovation: A demand heterogeneity perspective," Technological Forecasting and Social Change, Elsevier, vol. 125(C), pages 166-177.
    2. Zylbersztajn, Decio & Lazzarini, Sergio G., 2005. "On the survival of contracts: assessing the stability of technology licensing agreements in the Brazilian seed industry," Journal of Economic Behavior & Organization, Elsevier, vol. 56(1), pages 103-120, January.
    3. Teece, David J., 2010. "Technological Innovation and the Theory of the Firm," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 1, chapter 0, pages 679-730, Elsevier.
    4. Lotz, Peter, 1998. "Industry Structure Dynamics and the Nature of Technology in The Hearing Instrument Industry," UCAIS Berkeley Roundtable on the International Economy, Working Paper Series qt8821d232, UCAIS Berkeley Roundtable on the International Economy, UC Berkeley.
    5. John M. de Figueiredo & James J. Kim, 2004. "When Do Firms Hire Lobbyists? The Organization of Lobbying at the Federal Communications Commission," NBER Working Papers 10553, National Bureau of Economic Research, Inc.
    6. Kyle J. Mayer & Jack A. Nickerson & Hideo Owan, 2004. "Are Supply and Plant Inspections Complements or Substitutes? A Strategic and Operational Assessment of Inspection Practices in Biotechnology," Management Science, INFORMS, vol. 50(8), pages 1064-1081, August.
    7. Nicholaus Bhikolimana Tutuba & Wim Vanhaverbeke, 2022. "Business ecosystems: a structure to commercialize value chain of rural economies in developing areas," Journal of Global Entrepreneurship Research, Springer;UNESCO Chair in Entrepreneurship, vol. 12(1), pages 319-327, December.
    8. David J. Teece & Greg Linden, 2017. "Business models, value capture, and the digital enterprise," Journal of Organization Design, Springer;Organizational Design Community, vol. 6(1), pages 1-14, December.
    9. John M. de Figueiredo & Emerson H. Tiller, 2001. "The Structure and Conduct of Corporate Lobbying: How Firms Lobby the Federal Communications Commission," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 10(1), pages 91-122, March.
    10. Elisabetta Iossa & Federico Biagi & Paola Valbonesi, 2018. "Pre-commercial procurement, procurement of innovative solutions and innovation partnerships in the EU: rationale and strategy," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 27(8), pages 730-749, November.
    11. John M. de Figueiredo & Brian S. Silverman, 2012. "Firm Survival and Industry Evolution in Vertically Related Populations," Management Science, INFORMS, vol. 58(9), pages 1632-1650, September.
    12. John Joseph & Ronald Klingebiel & Alex James Wilson, 2016. "Organizational Structure and Performance Feedback: Centralization, Aspirations, and Termination Decisions," Organization Science, INFORMS, vol. 27(5), pages 1065-1083, October.
    13. de Figueiredo, John & Kim, James, 2004. "When Do Firms Hire Lobbyists? The Organization of Lobbying at the Federal Communications Commission," Working papers 4483-04, Massachusetts Institute of Technology (MIT), Sloan School of Management.

    More about this item

    JEL classification:

    • C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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