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"How Much you know versus how well I know you: Selecting a supplier for a technically innovative component"

Glenn Hoetker


First Author :

Glenn Hoetker
Business Administration
University of Illinois at Urbana-Champaign
1206 S. Sixth Street, M/C 706
Champaign, IL 61820

Abstract :
I use transaction costs economics to model an assemblerís choice of supplier for an innovative component. I extend the TCE model by drawing on the insights of the evolutionary view of strategy, which suggests a focus on the technical capabilities of potential suppliers, and the literature on interfirm relationships.

Using information on the procurement of displays by notebook computer manufacturers, I find that assemblers always prefer a more technically capable supplier. As uncertainty increases, assemblers value prior transactions with a supplier. At higher levels of uncertainty, prior transactions become irrelevant and assemblers prefer internal suppliers.

The model presented in this paper advances the theoretical frontiers of TCE, while expanding the range of managerial issues to which it can be applied.
Manuscript Received : 2002
Manuscript Published : 2002
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