Competition, Governance, and Relationship-Specific Investments: Theory and Implications for Strategy

Strategic Management Journal, Forthcoming

Marshall School of Business Working Paper

41 Pages Posted: 12 Oct 2012

See all articles by Nan Jia

Nan Jia

University of Southern California - Marshall School of Business

Date Written: July 17, 2012

Abstract

This paper uses biform games to examine the endogenous decision to invest in relationship-specific assets. It addresses the questions of how competition affects suppliers’ decisions to produce a general-purpose product or a relationship-specific product for a buyer and under what circumstances a governance arrangement designed to share investment costs between the transacting parties increases the investment in relationship-specific assets. We offer a balanced perspective that emphasizes both the superior transaction value of relationship-specific products and their high transaction costs while considering the competition effects generated by alternative investment plans. The model and its extensions generate new insights into investment decisions regarding relationship-specific assets.

Keywords: asset specificity, relationship-specific investment, competition, governance, biform game

Suggested Citation

Jia, Nan, Competition, Governance, and Relationship-Specific Investments: Theory and Implications for Strategy (July 17, 2012). Strategic Management Journal, Forthcoming; Marshall School of Business Working Paper. Available at SSRN: https://ssrn.com/abstract=2160955

Nan Jia (Contact Author)

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States

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