Negotiating cultures in corporate procurement

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Journal of Economic Behavior & Organization, ISSN: 0167-2681, Vol: 117, Page: 259-280

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Frank Rosar; Florian Mueller
Elsevier BV
Economics, Econometrics and Finance; Business, Management and Accounting
article description
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.