Implications of renegotiation for optimal contract flexibility and investment

• 成果类型: Article
• 署名作者: Plambeck, Erica L.; Taylor, Terry A.
• 署名单位: Stanford University; University of California System; University of California Berkeley
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.1070.0731
• 发表日期: 2007
• 页码: 1872-1886
• 关键词: Renegotiation; biform games; bargaining; Contract manufacturing; capacity pooling and allocation; quantity flexibility contracts

摘要

In a stylized model of biopharmaceutical. contract manufacturing, this paper shows how the potential for renegotiation influences the optimal structure of supply contracts, investments in innovation and capacity; the way scarce capacity is allocated, and firms' resulting profits. Two buyers contract for capacity with a common manufacturer. Then, the buyers invest in innovation (product development and marketing) and the manufacturer builds capacity. Finally, the firms may renegotiate to allow a buyer facing poor market conditions to purchase less than the contractual commitment and a buyer facing favorable conditions to purchase more. We show that renegotiation can greatly increase the firms' investments and profits, provided that the contracts are designed correctly. Failing to anticipate renegotiation leads to contracts that allow too much flexibility in the buyer's order quantity, and perform poorly relative to contracts designed to anticipate renegotiation. We provide clear conditions under which quantity flexibility contracts with renegotiation coordinate the system. Where quantity flexibility contracts fail, employing tradable options improves performance.