Asset Specificity

A phrase used in buyer and seller relationships to understand the relative balance of power between the parties when one or both parties invest in assets that may be uniquely applied only to the other party. For example, in the days of physical printing plates, the printer would recover the cost of a plate for a client’s letterhead from the client, as the plate could not be reused for another customer. In this case, the asset was specific to that client and the way that the printer managed the risk associated with the client no longer requiring the letterhead was that they recovered the total cost of the plates from that client. If the printer also had a printing machine, which could be used for any of its customers, that asset would have very low asset specificity. The concept is especially relevant in cooperative relationships, where parties may invest in customer specific assets based on longer term commitments. See also Supplier Relationship Management.