The article studies interfirm governance in the context of supplier–reseller relationships. Using a longitudinal study, the authors examine the roles of supplier selection efforts and mutual specific investments with respect to (1) motivating a supplier to make incremental investments and (2) safeguarding these investments from supplier ex post transaction costs. The authors also examine the joint effects of selection efforts and mutual investments on supplier ex post transaction costs. From a practical standpoint, the findings suggest guidelines for channel strategy. Theoretically, they provide new insights into relationship dynamics, including evidence regarding the effects of a firm’s governance choices over time.
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