What is a relationship specific investment?
According to the transaction cost theory (Williamson, 1985) relationship-specific investments defined as the degree to which assets are dedicated to a particular relationship create a lock-in situation for the investing party in inter- organizational relationships.
What is specific investment?
Specific investments, which are tailored to a particular company or value-chain partner, are important components of firms’ marketing strategies. At the same time, extant theory suggests that such investments pose considerable risk, because they put the receiver in a position to opportunistically exploit the investor.
What are relationship specific assets?
Assets are relationship-specific if their value is greater within a relationship than outside it. A typical example involves an upstream supplier who makes investments to customize her product for the needs of the downstream purchaser.
What is firm specific investment?
Specific investments are investments that have more value in a particular exchange than in alternative exchanges. Specific investments therefore cannot be redeployed to other exchanges without a significant loss in value. Stakeholders’ firm-specific investments take many different forms.
What is post investment holdup?
Hold-up arises when part of the return on an agent’s relationship-specific investments is ex post expropriable by his trading partner. Once such an investment is sunk, the investor has to share the gross returns with her trading partner. This problem, known as hold-up, is inherent in many bilateral exchanges.
How do you solve hold-up problems?
A solution to the hold-up problem is vertical integration such as a merger in which all parts of the body are being produced internally rather than outside. Vertical integration shifts the ownership of the organizational asset of the firm and therewith creates more flexibility and avoids potential of a hold-up.
What is a specific transaction?
1. A firm’s non-transferable investment whose utility is unique to a specific relationship with another firm. Learn more in: The Influence of Supply Chain Sustainability Practices on Suppliers.
Is a car a firm specific asset?
Entrepreneurs (companies) often use their own cars for business purposes, which are recorded as a part of the company’s fixed assets. Such cars are either owned by the particular entrepreneur (as an economic or a legal owner) or are just possessed by them (personal cars purchased through the financial lease).
What is a firm specific asset?
Firm-Specific Assets, Multinationality, and Firm Performance. As such, internalization theory primarily focuses on the firm-specific assets (i.e., proprietary assets), such as technological know-how, production and management skills, patents, brands, and goodwill, that are transferable within a firm across borders.
What are holdup costs?
When party A has made a prior commitment to a relationship with party B, the latter can ‘hold up’ the former for the value of that commitment. The hold-up problem leads to severe economic cost and might also lead to underinvestment.
What is a specific asset?
Specific assets are assets that have a significantly higher value within a particular transacting. relationship than outside the relationship.
What is a transaction specific investment?
1. A firm’s non-transferable investment whose utility is unique to a specific relationship with another firm.