Price Formats for Branded Components in Industrial Markets: An Integration of Transaction Cost Economics and the Resource-Based View

Organization Science, Vol. 23, No. 5, September-October 2012, pp. 1282-1297

Posted: 29 Jul 2013 Last revised: 6 Feb 2018

See all articles by Desmond (Ho-Fu) Lo

Desmond (Ho-Fu) Lo

Santa Clara University, Department of Marketing

Kellilynn Frias

Texas Tech University - Area of Marketing

Mrinal Ghosh

University of Arizona, Department of Marketing

Date Written: November 30, 2010

Abstract

In this paper, we propose an approach to show how the capability-based perspective of the resource-based view of the firm can be integrated with the comparative-governance approach of transaction cost economics to shed light on governance issues in interfirm relationships. We argue that transacting parties create value not only through the employment of partner-specific investment and coordination activities but also through the employment of heterogeneous, firm-specific resources that each firm brings to the relationship and that, in turn, governance structures reflect a discriminating alignment with these two distinct forms of value-creating activities and resources. Our thesis is empirically tested in the context of industrial original equipment manufacturers employing branded component contracts with independent component vendors. Specifically, we investigate the conditions under which the price terms for branded components are agreed upon (more fixed) ex ante versus negotiated (more flexible) ex post. Our results offer two insights. First, the chosen governance form reflects a trade-off between safeguarding and adaptation motives even among parties engaged in cooperative relationships. Second, valuable, firm-specific resources that preexist outside of the exchange relationship are at stake in these cooperative yet contractually incomplete relationships. They, together with relationship-specific investments and activities, have a significant impact on governance design.

Keywords: transaction cost economics, resource-based view, interorganizational relationships, pricing, branded components

JEL Classification: M31, L14, D43, M21

Suggested Citation

Lo, Desmond (Ho-Fu) and Frias, Kellilynn and Ghosh, Mrinal, Price Formats for Branded Components in Industrial Markets: An Integration of Transaction Cost Economics and the Resource-Based View (November 30, 2010). Organization Science, Vol. 23, No. 5, September-October 2012, pp. 1282-1297, Available at SSRN: https://ssrn.com/abstract=2275544

Desmond (Ho-Fu) Lo (Contact Author)

Santa Clara University, Department of Marketing ( email )

500 El Camino Real
Santa Clara, CA California 95053
United States

HOME PAGE: http://www.scu.edu/business/marketing/faculty/lo.cfm

Kellilynn Frias

Texas Tech University - Area of Marketing ( email )

TX
United States

Mrinal Ghosh

University of Arizona, Department of Marketing ( email )

Tucson, AZ 85721-0108
United States

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