Clients may be held hostage by subcontractors exploiting scarcity for price hikes

Evidence

Another potential hazard is that the subcontractor, recognizing his enhanced bargaining power at such times, will demand an increase in the contract price, claiming perhaps exceptional breakdown costs. In the short run the client may have no choice but to accede to the demand. A number of firms described such instances. There do not appear to be any effective safeguards. The only response is to seek an alternative supplier while completing the contract and subsequently break off the relation. — Diego Gambetta, Trust - Making and Breaking Cooperative…, 2599

Categorization

Category: Causal Relationships

Related

• Locked-in buyers face hold-up price demands from opportunistic suppliers (similarity 0.86)
• General-purpose equipment still cannot prevent subcontractor lock-in (similarity 0.79)