1. The Silver Bullet of Coors: TCE Theory of Contracting Michelle Mullins Jane Njuguna Andrea Woolverton

2. Overview zWhich of the three New Institutional Economic theories of the firm best describes Coors’ malt barley contracting program? zTheory Overview zCoors’ Strategic Focus zTheoretical Evidence zConclusion

3. Theory Overview AgencyIncomplete Contracting Transaction Cost Economics zIncentive Alignment through contract terms zIncentive Alignment through Asset Ownership zAsset Specificity zMinimize transaction costs (Saussier & Masten,2002) (Sykuta & Chaddad, 1999) (Williamson, 2000) (Furubotn & Richter,1998)

4. Coors’ Value Chain Operations Distribution Sales and Marketing Service Profit Margin Supply Chain Management  Integrated Cost Structure  Barley quality has significant role in cost variability

5. Coors’ Value Chain Operations Distribution Sales and Marketing Service Profit Margin Supply Chain Management Malting Barley Production Barley Input Vertical Integration Incomplete Contracting Contracted Production Transaction Cost Economics

6. Case Overview Case Facts zCoors contracts 100% of production: 160,000 acres z100% Domestic growers zNon-GMO barley varieties zR&D in-house zVertical Integration of malting operations Case Assumptions z Specific Asset in question is Quality/Taste of Beer z Loyalty is based on Quality/Taste z Coors strategy Competitive advantage through PVP seed

7. Quality Control Options zSell PVP seed and purchase back on open market operations y Malt barley variety co-mingling issues yCan not procure specifications of market

8. Malt Barley Specifications Quality MeasuresUSDA Grade 1Coors Test WeightMin. 50 lbs Suitable for maltingMin. 97% Sound barleyMin. 98% Wild OatsMax. 1% Thin BarleyMax. 5% Skinned & brokenMax. 5%Max 3% Moisture---Max. 13% Plumpness---Min. 80% Protein Content---8-13.5% Color---Min. 40

9. Quality Control Options zSell PVP seed and purchase back on open market operations yMalt barley variety co-mingling issues yCan not procure specifications of market zVertically integrate seed production yInformation intensive; 160,000 acres, not feasible zContract barley production yControl quality throughout value chain Minimizes profit erosion International opportunities

10. Theory-based Expectations zAgency Theory yPrices as incentives are sufficient through market zIncomplete Contracts yVertically integrate production as Coors must own the asset to control zTransaction Cost Economics yContract to control and preserve identity of specific asset

11. Justification of TCE zFocus of Transaction Cost Economics is on ex post costs and contractual hazards associated with a specific asset zA potential holdup situation is eliminated through contract terms yPVP barley = Quality of beer (specific asset)

12. Conclusion zR & D zStructure of Contracts Incomplete Contracts Theory Agency Theory/IC Theory

13. Thank you from Mizzou!