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Keiretsu and Relationship‐Specific Investment: A Barrier To Trade?
Author(s) -
Spencer Barbara J.,
Qiu Larry D.
Publication year - 2001
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/1468-2354.00138
Subject(s) - keiretsu , economic rent , counterintuitive , investment (military) , economics , sunk costs , business , international economics , industrial organization , monetary economics , international trade , microeconomics , finance , philosophy , epistemology , politics , political science , law
This article develops a model of informal procurement within Japanese keiretsu so as to consider effects on intermediate‐good imports, such as auto parts. Parts‐suppliers make relationship‐specific investments that benefit the automaker and prices are determined by bargaining after investment has been sunk. Although this investment raises efficiency, it limits the range of imports to less important parts, such as tailpipes, and it is possible that no parts are imported, despite lower foreign costs. Lack of information concerning investment rents combined with counterintuitive responses of imports to changes in output and costs could create unwarranted perceptions of a trade barrier.