Innovative upstream investments and input supply contracts

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Advances in the Study of Entrepreneurship, Innovation & Economic Growth

ISSN: 1048-4736
Series editor(s): Sherry Hoskinson and Donald Kuratko

Subject Area: Enterprise and Innovation

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Document Information:
Title:	Innovative upstream investments and input supply contracts
Author(s):	Joe Kerkvliet, Jason F. Shogren
Volume:	13 Editor(s): Gary D. Libecap ISBN: 978-0-76230-822-4 eISBN: 978-1-84950-123-1
Citation:	Joe Kerkvliet, Jason F. Shogren (2001), Innovative upstream investments and input supply contracts, in Gary D. Libecap (ed.) Entrepreneurial inputs and outcomes: New studies of entrepreneurship in the United States (Advances in the Study of Entrepreneurship, Innovation & Economic Growth, Volume 13), Emerald Group Publishing Limited, pp.327-348
DOI:	10.1016/S1048-4736(01)13011-0 (Permanent URL)
Publisher:	Emerald Group Publishing Limited
Article type:	Full length article
Abstract:	We explore how a cost-minimizing buyer innovates through the use of both a mix of transaction modes — contracts and spot markets — to secure a single input, given endogenous choice of upstream investments. We broadly define innovation as the internal structuring of how a firm purchases its inputs given it has the option of making innovative upstream investments that affect both the contract vendor's costs and the buyer's reservation spot market price within a risky external environment. The model examines the use of transaction-specific upstream investments that reduces the input vendor's costs, truncates the distribution of spot market prices and allows the buyer to take advantage of the synergy between the two modes.