The Double-Edged Effect of Knowledge Acquisition: How Contracts Safeguard Pre-Existing Resources

Strategic Management Journal, 2016, 37(10), 2104-2120

Posted: 31 Jul 2015 Last revised: 6 Feb 2018

See all articles by Giorgio Zanarone

Giorgio Zanarone

CUNEF

Desmond (Ho-Fu) Lo

Santa Clara University, Department of Marketing

Tammy L. Madsen

Santa Clara University

Date Written: July 22, 2015

Abstract

Acquiring knowledge on a partner’s pre-existing resources plays an important yet ambiguous role in collaborative relationships. We formally model how contracts trade off productive and destructive uses of knowledge in a buyer-supplier relationship. We show that, when the buyer’s pre-existing resources are vulnerable to the revelation of sensitive knowledge, the supplier overinvests in knowledge acquisition as it expects to use the knowledge as a threat in price negotiations. A non-renegotiable closed-price contract prevents such overinvestment and reduces the supplier’s ability to expropriate the buyer ex post. Our results extend to the cases of renegotiable closed-price contracts, repeat interactions between a buyer and a supplier, and the use of non-disclosure policies. We draw theoretical, empirical, and managerial implications from our model.

Keywords: Knowledge investment, knowledge acquisition, contract, price format, firm resources, firm capabilities, negotiation

JEL Classification: D23; L14; L22; M21; M31

Suggested Citation

Zanarone, Giorgio and Lo, Desmond (Ho-Fu) and Madsen, Tammy L., The Double-Edged Effect of Knowledge Acquisition: How Contracts Safeguard Pre-Existing Resources (July 22, 2015). Strategic Management Journal, 2016, 37(10), 2104-2120. Available at SSRN: https://ssrn.com/abstract=2637711

Giorgio Zanarone

CUNEF ( email )

Leonardo Prieto Castro 2
Madrid, Madrid 28040
Spain

HOME PAGE: http://gzanarone.cunef.edu

Desmond (Ho-Fu) Lo (Contact Author)

Santa Clara University, Department of Marketing ( email )

500 El Camino Real
Santa Clara, CA California 95053
United States

HOME PAGE: http://www.scu.edu/business/marketing/faculty/lo.cfm

Tammy L. Madsen

Santa Clara University ( email )

Management Department
500 El Camino Real
Santa Clara, CA 95053
United States

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