Shadow of the Contract: How Contract Structure Shapes Inter-Firm Dispute Resolution

Strategic Management Journal, 2011, 32(5): 532-555

52 Pages Posted: 4 May 2011 Last revised: 4 Feb 2016

See all articles by Fabrice Lumineau

Fabrice Lumineau

Purdue University

Deepak K. Malhotra

Harvard Business School - Negotiation, Organizations & Markets Unit

Date Written: May 2, 2011

Abstract

This paper investigates how contract structure influences inter-firm dispute resolution processes and outcomes by examining a unique dataset consisting of over 150,000 pages of documents relating to 102 business disputes. We find that the level of contract detail affects the type of dispute resolution approach that is adopted when conflict arises, and that different approaches are associated with different costs for resolving the dispute. We also find that the effect of contract choice on dispute resolution approach is moderated by the degree of coordination required in the relationship, and that the effect of dispute approach on costs is moderated by the degree of power asymmetry between the parties. Thus, even after controlling for various attributes of the exchange relationship and the dispute, the choice of contracting structure has important strategic implications.

Keywords: Contractual Governance, Disputes, Framing, Interest-Based Negotiation and Rights-Based Negotiation, Control and Coordination, Power

JEL Classification: L14, D23, L22, K41

Suggested Citation

Lumineau, Fabrice and Malhotra, Deepak K., Shadow of the Contract: How Contract Structure Shapes Inter-Firm Dispute Resolution (May 2, 2011). Strategic Management Journal, 2011, 32(5): 532-555. Available at SSRN: https://ssrn.com/abstract=1829742

Fabrice Lumineau (Contact Author)

Purdue University ( email )

610 Purdue Mall
West Lafayette, IN 47906
United States

Deepak K. Malhotra

Harvard Business School - Negotiation, Organizations & Markets Unit ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

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