Exploring the tension between theory and practice regarding complexity and performance in contract design is especially relevant. The goal of this paper is to understand why simpler contracts may commonly be preferred in practice despite being theoretically suboptimal. We study a two-tier supply...

Amanufacturer writes supply contracts with N buyers. Then, the buyers invest in innovation, and the manufacturer builds capacity. Finally, demand is realized, and the firms renegotiate the supply contracts to achieve an efficient allocation of capacity among the buyers. The court remedy for...

This paper considers two firms that engage in joint production. The prospect of repeated interaction introduces dynamics, in that actions that firms take today influence the costliness and effectiveness of actions in the future. Repeated interaction also facilitates the use of informal...

In the electronics industry and others, original equipment manufacturers (OEMs) are selling their production facilities to contract manufacturers (CMs). The CMs achieve high capacity utilization through pooling (supplying many different OEMs). Meanwhile, the OEMs focus on innovation: research...

In a stylized model of biopharmaceutical contract manufacturing, this paper shows how the potential for renegotiation influences the optimal structure of supply contracts, investments in innovation and capacity, the way scarce capacity is allocated, and firms' resulting profits. Two buyers...

Consider a firm developing an innovative product. Due to market pressures, production must begin soon after the product development effort is complete, which requires that an upstream supplier invests in capacity while the design of the product and production process are in flux. Because the...

Motivated by a $2.2 billion inventory write-off by Cisco Systems, we investigate how duplicate orders can lead a manufacturer to err in estimating the demand rate and customers' sensitivity to delay, and to make faulty decisions about capacity investment. We consider a manufacturer that sells...