International Customer's Willingness to Offer Favorable Prices to OEM Suppliers: Theory and Evidence

Abstract

This study examines how to lead international customers to offer more favorable prices to OEM suppliers, especially in emerging market. Drawing from economics-based, industrial organization and marketing literatures, we develop three distinct perspectives regarding the different roles of favorable prices in our setting of OEM-supplier relations. These three perspectives offer four predictions about the strategies for OEM suppliers to increase bargaining positions and lead international customers to offer more favorable prices. Based on a survey of 217 international customers of OEM suppliers in the electronics industry, which came from 49 countries, and their suppliers mostly from emerging markets. Results indicate that OEM supplier power and customers' expectation of relationship continuity will increase customers' favorable prices offering. In contrast, OEM suppliers who make specific transaction assets investment will reduce the likelihood that customers' willingness to pay more. Lastly, we also find that customers' concern about quality will increase their willingness to pay more only when OEM suppliers do not make specific investments and customers do not intend to maintain long-term relationships with suppliers. We discuss the implications of our theory and findings for the customer-supplier relationship literature on different roles of favorable prices.