The disparity in bargaining power between contracting parties can engender unfair subcontracting behaviours. This calls for policy measures to resolve such issues within subcontracting practices, especially in setting subcontract prices for which fairness is difficult to determine. At the same time, the government should consider the negative effects of the policies on social welfare as an increase in subcontract prices may raise the price of final goods. Accordingly, this study examines policy measures that reduce the bargaining power gap without diminishing welfare.

Since exclusive contracts are impeded by hold-up possibilities, it is reasonable to suppress the bargaining power of purchasers engaging in exclusive contracts. Suppliers will then find it profitable to switch to exclusive contracts. The more contracts become exclusive, the less costs are incurred by the contracting parties in production and transaction, which enhances efficiency. One way to curb the widening of the bargaining power gap under exclusive contracts is forcing purchasers to prove why a price cut is necessary. Stronger penalties may also be effective. But, before measures can be implemented, a clear definition of “exclusive contract” is required. A useful criterion would be whether a purchaser is in the dominant position in terms of supply-side substitutability.

The bargaining power gap would shrink if suppliers formed coalitions; the coalitions could become lawful under the Monopoly Regulation and Fair Trade Act if certain conditions are met. The key criterion is whether there are any harmful repercussions to social welfare. The double marginalization theory implies that group-bargaining reduces social surplus, but this study shows that social surplus may not decrease as much as expected, especially when the final good market is competitive. Moreover, there is no welfare loss if suppliers’ coalitions are paid a share of the margin in addition to their marginal costs. Therefore, as a precondition to legitimize the coalitions, the government must force the contracting parties to divide the margin and to make their own cost structures transparent to the other parties for verification of the exact margin.

Preface
Executive Summary

Chapter 1 Introduction
　Section 1 Background of the Study
　Section 2 Research Direction
　Section 3 Review of Previous Studies

Chapter 2 Types of Unfair Subcontracting Practices and Countermeasures
　Section 1 Unfair Subcontracting Practices under Legal Framework
　Section 2 Categorization of Unfair Practices and Corresponding Measures
　Section 3 Strategies to Reduce the Bargaining Power Gap

Chapter 3 Regulation of Purchasers’ Abuse of Bargaining Power
　Section 1 Efficiency and Drawbacks of Exclusive Contracts
　Section 2 Incentives for Suppliers to Enter Exclusive Contracts
　Section 3 Voluntary Contracts as a Resolution Mechanism
　Section 4 Regulatory Measures for Purchasers’ Bargaining Power

Chapter 4 Strengthening Suppliers’ Bargaining Power
　Section 1 Double Marginalization Theory
　Section 2 Negotiation of Subcontract Prices
　Section 3 Negotiation of Margin Allocation
　Section 4 Implementation of Collective Bargaining

Chapter 5 Conclusion
　Section 1 Summary of Key Findings
　Section 2 Further Considerations

References
Appendix
ABSTRACT