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|Title:||Product Performance and Contracts in Multi-component System Industries: Theory and Evidence|
|Keywords:||Product Performance Contract, Multi-Component Systems, Governance, Interfirm Relationships|
|Abstract:||This dissertation will investigate how Product Performance Contracts are organized in Multi Component Systems contexts that proliferate contemporary OEM industries. The last two decades have seen a big change in both practice as well as the product engineering technologies that form the ecosystem within which suppliers and buyers negotiate the scale and scope of their transaction contracts. While we have seen the focus of industrial procurement move from specifications based contracts to performance based contracts, we are also witnessing a burgeoning technological capability that allows remote monitoring of product performance. These capabilities are part of the interconnectivity driving the much-touted Internet of Things (IoT) technology and at the heart of the Industrial Big Data ecosystem. The dissertation will attempt to explain three major phenomena in the industrial buyer and seller relationship in the context of Multi Component System Industries. First, we uncover the factors that explain the choice of product performance contract specificity between the OEM and suppliers. We first set up an analytical model to explain the notion of an optimal contract specificity level and predict and further empirically test the role of different factors in the choice of contract specificity. We find that while the technology uncertainty decreases the level of optimal contract specificity, OEM’s transaction specific investment, unconstrained mixing-and-matching of branded component, and extent of product monitoring technology increases the level of optimal contract specificity. Second, we provide empirical evidence that any deviation from optimal contract specificity erodes value in the form of an increase in total transaction cost. In our transaction cost efficiency model, we also illustrate with a precise granularity that under-specified contracts lead to more ex-post dispute costs, and over-specified contracts lead to more ex-post contract monitoring cost and ex-ante contract writing cost. Third, we investigate how contracts, investments in strategic capabilities such as monitoring technology, the overall firm strategy, and transaction costs determine the firm performance. We find that not every transaction cost is a dead weight loss in terms of product performance. Most notably we find that ex-post dispute costs are associated with higher product performance when there is a major incident such as component failure between the OEM and the supplier. Methodologically, this dissertation proposes to use a combination of field work, mathematical modeling, conceptual theory building, and empirical analysis of primary data about firm practices.|
|Appears in Collections:||Open Access Dissertations and Theses|
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