The structure of costs and the duration of supply relationships /

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Bibliographic Details
Author / Creator:MacKay, Alexander, author.
Ann Arbor : ProQuest Dissertations & Theses, 2016
Description:1 electronic resource (89 pages)
Format: E-Resource Dissertations
Local Note:School code: 0330
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Other authors / contributors:University of Chicago. degree granting institution.
Notes:Advisors: Ali Hortacsu Committee members: Brent Hickman; Casey Mulligan; Chad Syverson.
This item is not available from ProQuest Dissertations & Theses.
Dissertation Abstracts International, Volume: 77-10(E), Section: A.
Summary:The duration of a supply relationship depends on two types of costs: (i) the transaction cost of switching suppliers and (ii) the cost of being matched to an inefficient supplier when the relationship lasts too long. I develop a model of optimal contract duration that captures this tradeoff, and I provide conditions that identify the underlying cost structure. Latent transaction costs are identified even when the exact supplier selection mechanism is unknown. For a typical procurement good, I estimate the model and find that transaction costs are a significant portion of total costs. I conduct two counterfactual exercises. In the first, I estimate the effects of changing the maximum allowable contract duration, which is a common contracting friction. In the second, I evaluate the impact of reducing transaction costs. This second counterfactual illustrates why quantifying transaction costs is important for accurate welfare analysis.
In developing the model, I demonstrate identification of an auction model with private costs and unobserved heterogeneity when only the winning bid is observed. This result applies generally to auctions and allows for more flexible empirical work where data is limited.