Supplier Development Investments in a Triadic Setting

Abstract

This paper extends the analysis of supplier development investments to a triadic setting where a second buying firm also invests in the development of a supplier. The analysis of buying firms' cost-based decision of the optimal supplier development investment shows that noncooperation between the two buying firms leads to higher total development investments than cooperation. Hence, the decision to cooperate with other buyers in development activities reduces total development investments. Within this triadic setting, we are able to make novel predictions about the buyers' behavior in supply chains.