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KDI Journal of Economic Policy. Vol. 47, No. 3, August 2025, pp. 89-114
https://doi.org/10.23895/kdijep.2025.47.3.89
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Efficiency Effects of Regulations on Unfair Subcontracting Behaviors
Abstract
This paper investigates the efficiency effects of governing vertical relationships by analyzing the incentives of firms to engage in exclusive contracts. In particular, the analysis focuses on the subcontracting context. When a downstream firm possesses a superior bargaining position, upstream subcontractors do not prefer an exclusive contract, even when it is efficient, as such a contract lowers their bargaining power even further, ultimately leading to lower profits. It can therefore enhance efficiency to encourage upstream firms to engage in an exclusive contract by limiting bargaining power abuses by superior downstream firms. The paper discusses the required flexibility of such a regulation as well as the evaluation of the current regulation based on the analysis.
Keywords
Subcontracting, Efficiency, Hold-up, Bargaining Power, Exclusive Contract
JEL Code
L13, L14, L42
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Other articles from this issue
- Contract Type Selection in Korea’s Large-Scale Retail Sector
- On the Effects of National Debt on the Distribution of Household Assets
- The Macroeconomic Effects of Structural Oil Price Shocks: An International GVAR Analysis
- Efficiency Effects of Regulations on Unfair Subcontracting Behaviors
- Sharing Economic Rents with Workers? Evidence from Matched Employer-Employee Data in Vietnam
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