Managing vertical and horizontal supply chain relationships in the absence of formal contracts
Abstract
The dissertation consists of three essays that explore signaling mechanisms for
coordinating inter and intra supply chain relationships when formal contracts either
are not used, or cannot be used. In the first essay, we examine the role of performance
based compensation in encouraging strategic investment from suppliers. By altering
the senior management’s incentives, a compensation plan can serve as a credible
commitment to higher levels of output from the firm. Such a commitment can
motivate suppliers to enter the industry and invest in capacity. The analysis shows
that, by providing managers with appropriately designed compensation, a firm’s
shareholders can increase the return on their investment.
In the second essay, we consider the technology licensing in the context of complementary
interactions. We investigate how the firm with patent protection can
benefit from licensing its technology to other manufacturers even if these other
firms do not enjoy a cost advantage. Licensing can provide a credible commitment
to the availability of the patent protected product, thereby encouraging output of
the complement. We show the conditions under which a firm can earn more from
licensing its technology to firms than it can by serving the market as a monopolist.
In addition, we explore alternative types of license arrangements in the study.
In the last essay, we investigate the product line strategy under complementarity.
If the product is differentiable, a monopolist under strong enough complementary
effects would provide a broader product line than he would if the demand for his
product was independent of other markets. In addition, we show that providing
a broader product line and technology licensing are strategic complements to each
other. Finally, the quality decision is studied when the firm licenses the technology
to other manufacturers.
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