Asset Specificity

Asset specificity refers to the extent to which an asset is tailored or specialized for a particular transaction or relationship. When assets are highly specific, they are designed or adapted to serve only a particular purpose or partner, making them less useful elsewhere. This increases the importance of the relationship because switching to a different partner or use would be costly or impractical. For example, a factory specialized for making a unique product or equipment built specifically for one client has high asset specificity. It influences bargaining power and the level of commitment needed between parties in a business relationship.