Implications of Renegotiation for Optimal Contract Flexibility and Investment
通过生物制药合同制造模型，分析重新谈判如何影响供应合同设计、创新投资和产能分配，发现正确设计合同能大幅提升投资和利润，而忽视重新谈判会导致合同灵活性过高、绩效不佳。
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 contract for capacity with a common manufacturer. Then, the buyers invest in innovation (product development and marketing) and the manufacturer builds capacity. Finally, the firms may renegotiate to allow a buyer facing poor market conditions to purchase less than the contractual commitment and a buyer facing favorable conditions to purchase more. We show that renegotiation can greatly increase the firms' investments and profits, provided that the contracts are designed correctly. Failing to anticipate renegotiation leads to contracts that allow too much flexibility in the buyer's order quantity, and perform poorly relative to contracts designed to anticipate renegotiation. We provide clear conditions under which quantity flexibility contracts with renegotiation coordinate the system. Where quantity flexibility contracts fail, employing tradable options improves performance.