Does ABC Information Exacerbate Hold-Up Problems in Buyer-Supplier Negotiations?

Posted: 19 Oct 2007

See all articles by Andrea Drake

Andrea Drake

Louisiana Tech University

Susan F. Haka

Michigan State University - The Eli Broad College of Business and The Eli Broad Graduate School of Management

Abstract

Negotiations between buyers and suppliers that require sharing cost details to identify profitable relationship specific investments often fail and result in hold-ups. Based on inequity aversion, strategic uncertainty, and risk dominance criteria, we expect negotiators to be more reluctant to share fine information (ABC) than coarse, less detailed information (VBC), which suggests that fine information systems like ABC can exacerbate hold-ups. When negotiators share fine information they achieve more efficient bargaining agreements. However, we find that strategic concerns about inequitable outcomes (fear of opportunistic behavior) lead fewer negotiating pairs to share fine information (where inequitable outcomes can be larger) than coarse information (where inequitable outcomes are smaller). Our results demonstrate that information fineness leads negotiators to trade-off potential utility losses due to fairness considerations and potential monetary gains. Fewer (more) negotiators chose to share fine (coarse) information and thus minimize fairness based utility losses (maximize monetary gains).

Keywords: Activity-based costing, hold-up problem, inequity aversion, buyer-supplier relations

JEL Classification: C78, C70, D82, C71, C92, M40, M46

Suggested Citation

Drake, Andrea and Haka, Susan F., Does ABC Information Exacerbate Hold-Up Problems in Buyer-Supplier Negotiations?. Accounting Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1021354

Andrea Drake (Contact Author)

Louisiana Tech University ( email )

School of Accountancy
P.O. Box 10318
Ruston, LA 71272
United States

Susan F. Haka

Michigan State University - The Eli Broad College of Business and The Eli Broad Graduate School of Management ( email )

East Lansing, MI 48824-1121
United States
517-432-2920 (Phone)
517-432-1101 (Fax)

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