The double‐edged effect of knowledge acquisition: How contracts safeguard pre‐existing resources

Abstract

Research summary: 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, repeated interactions between a buyer and a supplier, and the use of nondisclosure policies. We draw theoretical, empirical, and managerial implications from our model. Managerial summary:This study yields new insights regarding the use of contract design in protecting pre-existing, nonrelationship specific assets in buyer-supplier arrangements. Anecdotal examples illustrate the "dark side" of these arrangements where opportunistic suppliers exploit knowledge of buyers' pre-existing resources to seek rent and appropriate value. When a supplier is likely to act harmfully, a closed-price contract that specifies the price of the supplier's component upfront may reduce the supplier's incentives to overinvest in acquiring and exploiting knowledge of the buyer's pre-existing resources. As such, when a buyer's pre-existing resources are highly valuable, and thus more vulnerable to use by the supplier outside of the arrangement, a non-renegotiable closed-price contract is more efficient. Additionally, limited disclosure policies and informal agreements based on repeated interactions complement indirect governance via price contracts.

An investigation of knowledge protection practices in inter-organisational collaboration: protecting specialised engineering knowledge with a practice based on grey-box modelling

“…due to the immature nature and tacit character of knowledge in innovation networks, it is often impossible to enforce legal measures (Valkokari et al, 2012). Also as a response to the limited applicability of legal measures, the perspective of informal protection measures in particular in more informal network settings received more attentionsee for example Cox Pahnke et al (2015), Hernandez et al (2015); Zanarone et al (2016). Here, researchers found informal measures to be more suitable protection mechanisms in many cases, such as secrecy, building of trust, of relational capital and close monitoring of partner behaviour (Di Stefano et al, 2014).…”

Gestión de los costos de comparación social en las organizaciones

“…En segundo lugar, y lo más importante, exploramos la interacción entre contratos formales e informales en la gestión de los costos de comparación social. 3 En la literatura de administración estratégica, Zanarone et al (2016) analizan un modelo donde los proveedores de una empresa obtienen satisfacción al castigar a sus clientes intransigentes, lo que les permite negociar mejores precios bajo la amenaza de revelar información confidencial. Zanarone et al (2016) utilizan su modelo para estudiar cómo los contratos de precio fijo y las políticas de divulgación de información pueden ayudar a desalentar la adquisición excesiva de información.…”

“…3 En la literatura de administración estratégica, Zanarone et al (2016) analizan un modelo donde los proveedores de una empresa obtienen satisfacción al castigar a sus clientes intransigentes, lo que les permite negociar mejores precios bajo la amenaza de revelar información confidencial. Zanarone et al (2016) utilizan su modelo para estudiar cómo los contratos de precio fijo y las políticas de divulgación de información pueden ayudar a desalentar la adquisición excesiva de información. Más relacionado con nuestro artículo, Nickerson y Zenger (2008) estudian el diseño organizativo óptimo para para mitigar los costos de comparación social, asumiendo que dichos costos surgen más fácilmente dentro que fuera de las organizaciones.…”

Contracting to (dis)incentivize? An integrative transaction‐cost approach on how contracts govern specific investments

“…First, as emphasized in TCE, specific investment locks the supplier and the OEM into a bilateral monopoly; as a result, the OEM may engage in opportunistic "haggling" over the component's price (e.g., Hart & Moore, 2008;Masten, 1986Masten, , 1988. Second, as highlighted by recent theoretical models (Zanarone, Lo, & Madsen, 2016), specific investment may enable the supplier to appropriate preexisting resources that the OEM brings to the relationship. For instance, the supplier may use knowledge of the OEM's technology gained while customizing the component to compete with the OEM in the end-product market (Alcacer & Oxley, 2014;Arruñada & Vazquez, 2006) or develop components for competing OEMs.…”