The Seeds of Dissolution: Discrepancy and Incoherence in Buyer-Supplier Exchange

Abstract:     
In this research, we examine a novel mechanism of interorganizational relationship dissolution: incoherence in a partner’s behavior. We propose that the discrepancy between an exchange partner’s opportunistic behavior and the focal firm’s expectations may create a state of incoherence and uncertainty, and that this effect can be damaging to the exchange even when the partner’s behavior is better than expected. Using nearly 500 longitudinal, confidential reports of industrial buyers and sellers, we find supportive evidence that: (1) the net effect of the discrepancy is initially positive when behavior is better than expected, but becomes rapidly negative thereafter, and (2) the net effect of the discrepancy is always negative when behavior is worse than expected. Thus, these effects will generally damage the exchange even as the partner tries to improve the relationship. This gives insight into why exchange relationships that hit a downward spiral can be difficult, if not impossible, to salvage. We also show that the dysfunctional consequences of discrepancy are mitigated through exchange structures such as the magnitude of dependence on an organizational partner, the development phase of the relationship, and the presence of bilateral idiosyncratic investments. Implications for theory and the management of interorganizational relationships are developed.

Number of Pages in PDF File: 37

Keywords: Interorganizational Relationship Management and Performance, Belief Discrepancy, Incoherence, Organizational Sensemaking, Opportunism, Dependence, Relationship Phase, Bilateral Investments

JEL Classification: M00, M31, M32

Accepted Paper Series