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Contribution to Book
Original Equipment Manufacturing Contract and Three-Way Bargaining
The Future of Commercial Contracts in Scholarship and Law Reform (2018)
  • Chien-Chung Lin
Abstract
This chapter discusses the original equipment manufacturer (OEM), a model of large-scale industrial production that is popular in many sectors of industry, especially in the information technology industry today. Basically, an OEM’s contractual setting usually involves a three-party negotiation, which includes a product designing company/brand owner, an OEM, and a component supplier. The underlying logic of the OEM model is the delegation of manufacturing tasks to different players who equip different skill sets or specialty, i.e., a better resource allocation. However, this contractual design also entails much complexity in coordination as modern manufacturing often contains dozens or hundreds units or steps before the final product is complete. 

In this chapter, the author further observes and discusses the phenomenon of the “technical service charge” contract. As a side agreement between OEM and a component supplier that routinely allows OEM receive a payment or rebate from key component suppliers even though there is no real exchange existing, the “technical service charge” contract exemplifies the exerted opportunism and illustrates a dynamics in a multi-way adjustment in modern-day manufacturing. By observing this contractual design, it sheds more light on how contracting parties extract benefit from opportunism, as well as the nature of it.
Keywords
  • Original equipment manufacturer (OEM),
  • Information technology (IT) industry,
  • Apple,
  • Three-Way negotiation,
  • “Technical service charge” contract,
  • Opportunism.
Publication Date
January, 2018
Citation Information
Chien-Chung Lin. "Original Equipment Manufacturing Contract and Three-Way Bargaining" The Future of Commercial Contracts in Scholarship and Law Reform (2018)
Available at: http://works.bepress.com/chien_chung_lin/10/