What Factors Determine the Number of Trading Partners?
39 Pages Posted: 28 Apr 2011
Date Written: April 22, 2011
The purpose of the paper is to provide a simple model explaining buyer-supplier relationships and show what factors determine the number of trading partners. We show that when the supplier is able to determine the number of trading partners, the optimal number is small if the supplier's bargaining power with them is weak, the economy of scope in the supplier's variable costs is significant, and that in its sunk investment is weak. Investment may be greater when the number of trading partners is small. The results may be consistent with the formation of Japanese buyer-supplier relations.
Keywords: buyer, supplier, investment, economies of scope
JEL Classification: L14, M11
Suggested Citation: Suggested Citation