IDEAS home Printed from https://ideas.repec.org/h/spr/lnechp/978-3-642-02791-8_5.html
   My bibliography  Save this book chapter

Relational Contracts and Optimal Buy-Back Price

In: Relational Supply Contracts

Author

Listed:
  • Michaela Isabel Höhn

    (WHU-Otto Beisheim School of Management)

Abstract

In Chap. 4, we considered a contracting problem where two firms interact repeatedly on the basis of a QF contract. In particular, the long-term buyer-supplier relationship was geared towards quality improvement and allowed for informal adaptations of contract parameters. The goal of the analysis was to determine an optimal relational contract specifying optimal policies for supplier and buyer. In this chapter, we shall keep the previous setup, but replace the QF contract by a buy-back contract. That is, we consider a price-based returns mechanism instead of a quantity-based one. The objectives are to identify an optimal relational contract for this setting, to examine the effect on the optimal buy-back price, and to lay the ground for the comparison of QF and buy-back contract in the context of relational contracting. Consider a two-firm supply chain where supplier and buyer contract on the basis of a buy-back contract with relational aspects influencing buyer-supplier interactions. Figure 5.1 describes the sequence of events. Suppose that the two firms negotiate a formal buy-back contract at the beginning of the business relation. This long-term contract specifies that the buyer purchases Q units for the price w b per unit at the start of the period and may return up to Q units at the end of the period for a refund of b per unit. Also note that this contract is court-enforceable. In the course of their business relationship, buyer and supplier both induce effort for quality improvement. But their efforts for quality are unobservable and uncontractible. To induce effort from the supplier’s side, the buyer holds out the prospect of reducing the buy-back price. In addition, the buyer can offer a supplementary transfer payment. Unlike the parameters of the formal buy-back contract, these promises are informal and cannot be enforced by court.

Suggested Citation

  • Michaela Isabel Höhn, 2010. "Relational Contracts and Optimal Buy-Back Price," Lecture Notes in Economics and Mathematical Systems, in: Relational Supply Contracts, chapter 0, pages 77-88, Springer.
  • Handle: RePEc:spr:lnechp:978-3-642-02791-8_5
    DOI: 10.1007/978-3-642-02791-8_5
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:lnechp:978-3-642-02791-8_5. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.