Why firms make unilateral investments specific to other firms: The case of OEM suppliers

This paper examines why and under what conditions firms will make unilateral relationship− specific investments to serve their transaction partners. We propose that firms are more likely to make unilateral relationship−specific investments when the investment yields economic spillover values for other transactions with the same exchange partners as well as for third−party transactions. We also model two types of positive inter−project spillover effects that a transaction may generate: knowledge spillovers and reputation spillovers. We find empirical support for our developed theory in the context of Taiwanese suppliers of Original Equipment Manufacturers