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On the profitability of self‐sabotage

Author

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  • David P. Brown
  • David E. M. Sappington

Abstract

We demonstrate how a supplier can enhance his expected profit by intentionally increasing his expected production costs or limiting his ability to reduce these costs. Such self‐sabotage benefits the supplier when it induces a buyer to implement a more favourable procurement policy, i.e., one that motivates the supplier to deliver cost‐reducing effort systematically rather than selectively. We also demonstrate how the seemingly inefficient persistent implementation of a procurement contract that does not change as the prevailing environment changes can reduce procurement costs by deterring self‐sabotage. Rentabilité de l’auto‐sabotage. Dans cet article, nous expliquons la façon dont un fournisseur peut améliorer ses prévisions de bénéfices soit en augmentant ses coûts de production, soit en limitant sa capacité à les réduire. Un tel auto‐sabotage bénéficie au fournisseur dès lors que la manœuvre incite l’acheteur à mettre en place une politique d’approvisionnement plus favorable, c’est‐à‐dire qui encourage le fournisseur à faire des efforts systématiques plutôt que sélectifs en matière de réduction des coûts. Nous montrons également en quoi la mise en œuvre systématique d’un contrat d’approvisionnement, en apparence inefficace et intangible dans un environnement en mutation, peut permettre de réduire les coûts d’approvisionnement en dissuadant de telles manœuvres d’auto‐sabotage.

Suggested Citation

  • David P. Brown & David E. M. Sappington, 2021. "On the profitability of self‐sabotage," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(1), pages 68-91, February.
  • Handle: RePEc:wly:canjec:v:54:y:2021:i:1:p:68-91
    DOI: 10.1111/caje.12499
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    References listed on IDEAS

    as
    1. David P. Brown & David E.M. Sappington, 2018. "Optimal Procurement of Distributed Energy Resources," The Energy Journal, , vol. 39(5), pages 131-156, September.
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