Environment, Structure and Performance in Interfirm Exchange

Abstract

This manuscript uses transaction cost analysis and contingency theory to present a model of interfirm relationship management. The conceptual model maintains that opportunism and effectiveness emerge through the interaction of specific assets and technological uncertainty with formalization and participation. The model is tested in working relationships between buyers and sellers of capital equipment. The results suggest that formalization and limited participation reduce opportunism under conditions of high asset specificity and low technological uncertainty. Nevertheless, formalized procedures and vendor participation in decision making raise effectiveness where asset specificity is high and technological uncertainty is low. These results suggest that managers institute operating procedures to control specific assets in stable technological environments. Vendor participation should be monitored to limit opportunism while simultaneously raising effectiveness.

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