Working Together and Working Things Out: Dispute Resolution in Repeated Vertical Exchange Relationships
Posted: 18 Feb 2008 Last revised: 2 May 2011
Date Written: January 10, 2009
In this paper we explore the impact of relational history on firms' willingness to "work things out" in subsequent agreements, by examining the way that disputes between partners in vertical exchange relationships are actually resolved. Counter to the received wisdom we find no evidence of an automatic preference for private dispute resolution (negotiation, mediation or arbitration) among repeat transactors, relative to those in new exchange relationships - the act of working together does not appear to increase exchange partners' ability to work things out in all instances. However, we find that when there is evidence of the existence of cooperative norms in previous dealings between the partners, subsequent disputes are significantly more likely to be settled privately, as expected. In contrast, in cases where previous interactions are described in negative terms disputes are just as likely to end in litigation as if they were new partnerships. Indeed, we find some evidence of a higher propensity to turn to the courts for compensation when repeated conflict undermines familiarity-based trust.
Keywords: Repeat exchange, Contract disputes, Litigation, Dispute resolution
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