Academic journal article Academy of Marketing Studies Journal

To Commit or Not to Commit? the Influence of Relationship Governance on Buyer-Seller Commitment

Academic journal article Academy of Marketing Studies Journal

To Commit or Not to Commit? the Influence of Relationship Governance on Buyer-Seller Commitment

Article excerpt

INTRODUCTION

What role does governance play in the development of commitment in buyer-seller relationships? Though much research has investigated the effect that various factors such as social norms, trust, and commitment (Anderson & Narus, 1990; Anderson & Weitz, 1989; Doney & Cannon, 1997; Dwyer et al., 1987; Ganesan, 1994; Geyskens et al., 1999; Morgan & Hunt, 1994) have on buyer-seller relationships not much has been done to address how these social factors first develop (Rokkan et al., 2003). The importance of formal (e.g., explicit contracts, monitoring, qualification programs) and informal governance (e.g., social norms) in relationship development has been well recognized by researchers (Buvik & John, 2000; Cannon et al., 2000; Gundlach & Murphy, 1993; Heide & John, 1990; 1992; Heide & Wathne, 2006; Jap & Ganesan, 2000; Lusch & Brown, 1996; Rokkan et al., 2003; Stump & Joshi, 1998); however, what remains currently unexplored involves the effect these different governance mechanisms have on the development of commitment in buyer-seller relationships.

We attempt to address this issue by developing and empirically testing a transaction cost analysis (TCA)-based framework (Williamson, 1975; 1985; 1996) that links relationship governance to commitment. In this paper, we propose that mutual investments play a more important role than has been identified in the current literature by modifying each party's primary motivation from that of optimizing individual outcomes to optimizing relational outcomes. Our results provide initial support for this assertion which has important implications for both researchers and managers.

From a managerial perspective, this study provides both buying and selling firm managers with insights that will help them develop strategies that encourage the formation of commitment in their relationships. Moreover, we make an important theoretical contribution by examining the impact that governance has in creating a platform for establishing a mutual focus on optimizing relationship outcomes, which increases the parties' willingness to make additional relationship investments, as opposed to the more conventional perspective of primarily reducing opportunism.

BACKGROUND AND HYPOTHESES

Commitment represents the degree to which the buying firm and the selling firm are willing to make investments in the relationship (Sarkar et al., 2001). Since our study involves interorganizational buyer-seller relationships, we follow Sarkar's et al. (2001) lead and use their definition of commitment. In particular, we define commitment as the degree to which the parties are willing to make significant relationship investments and to dedicate whatever people and resources that is required to make the relationship a success.

Prior research suggests that relationships develop over time and in distinct stages (Dwyer et al., 1987; Wilson, 1995). For this reason, Ring and Van de Ven (1994) concluded that relationship governance also changes over time, first relying on formal governance then being replaced and/or supplemented by less formal governance mechanisms (e.g., relational governance). When entering into a relationship, both parties do not know each other and are not sure how long the relationship between them will last (Dwyer et al., 1987; Narayandas & Rangan, 2004; Wilson, 1995). For this reason, they are inclined to implement mechanisms designed to protect themselves while also controlling the behaviors of their partner. Due to the dominant position that buying firms frequently hold in the initial stages of relationship development (Narayandas & Rangan, 2004), they usually have a greater influence on the controls that are initially implemented.

Buyers have been found to rely on a number of formal controls such as contractual incentives (Wathne & Heide, 2000), monitoring (Heide et al., 2007; Stump & Heide, 1996), qualification procedures (Stump & Heide, 1996; Wathne & Heide, 2004), and up-front supplier relationship investments (Ganesan, 1994; Heide, 1994; Stump & Heide, 1996; Wathne & Heide, 2004). …

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