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Summary of the article '‘Bilateral dependency and supplier performance ambiguity in supply chain contracting: Evidence from the railroad industry’$3.20
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Bilateral dependency and supplier performance
ambiguity
Samenvatting ‘Bilateral dependency and supplier performance
ambiguity in supply chain contracting: Evidence from the railroad
industry’
ALSO LOOK INTO TRANSACTION COST ECONOMICS AND KNIGHTIAN RISK
In this study we examine buyer–supplier relationships under conditions of bilateral
dependency. Research on supply chain relationships tends to focus on power and asymmet-
ric dependency. Our objective is to complement this by examining contractual challenges in
the context of bilateral dependency.
Unilateral dependency
With unilateral dependency, dependency is asymmetric: Buyer– supplier relationships are
approached from a perspective where “one of the parties, usually the large buyer, deals
with smaller suppliers in a peremptory way, [and] often ‘use up’ their suppliers and discard
them”. When a supplier unilaterally depends on a comparatively larger buyer, the
contracting implications of supplier performance ambiguity are a nonissue: The
comparatively more powerful large buyer sets the terms, and the supplier either accepts
them or walks away. We also call this the muscular approach.
We can also think of dependency in switching costs: Unilateral dependency means the
switching cost is consequential for one of the exchange partners and inconsequential for the
other.
Bilateral dependency
With bilateral dependency, dependency is symmetric. With bilateral dependency, you can
better use the the benign approach,” which emphasizes cooperation and mutual gains in an
attempt to contract efficiently. “The benign approach” emphasizes voluntary cooper- ation
and trust.
We can also think of dependency in switching costs: bilateral dependency means
consequential switching costs for both parties.
Bilateral dependency and the need for relational contracting arise from relation-specific
investments. this is known as asset specificity = Investments made specifically for a
transaction such that the next best use leads to loss of productive value. Importantly, even if
the relation-specific investment is made by only one of the parties, say, the supplier, the
resulting dependency often develops bilateral features: “The buyer cannot turn to
alternative source of supply and obtain the item on favorable terms since the cost of sup-
ply from unspecialized capital is presumably great”
Supplier performance ambiguity
Supplier performance ambiquity means that you cannot say how well a supplier is
performing. The root cause of a failure cannot be found (= metering problem). This can have
two causes:
1. Lineair thinking
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