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Tuesday, February 27, 2018 at 11:15am to 12:45pm
Sage Hall, 333
Johnson Graduate School-Management, 106 Sage Hall, Ithaca, NY 14853-6201, USA
Can Urgun - Princeton University
Contract Manufacturing Relationships
Abstract: Contract manufacturing enables intellectual property holders to enjoy scale economies, reduce labor costs and free up capital. However, in many scenarios contract manufacturing is a double-edged sword, rife with entrenchments, threats of predation or hold up. I explore contract manufacturing relationships in two scenarios: First, a setup with a single agent that can learn, forget and threaten the principal with predation. Second, a setup with multiple agents that have capacity constraints and can threaten the principal with hold up. The analysis requires a novel methodological approach: in both settings the principal optimal contract is characterized by a simple index rule.