Friends and Profits Don't Mix: The Performance Implications of Repeated Partnerships
Forthcoming, Academy of Management Journal
45 Pages Posted: 25 Nov 2014
Date Written: September 18, 2014
Firms use repeated partnerships to gain the benefits of shared experience such as improved coordination, collaboration, and adaptation. However, there are downsides to partnering repeatedly, including vulnerability to opportunistic partners upon whom the firm becomes dependent, muted efficiency incentives, and overlooking better options. This paper unpacks the effects of repeated partnerships by investigating their impact on two distinct types of performance: revenue and profitability. To understand repeated partnerships, we analyze a unique dataset of 580 partnerships that completed 144 bridge construction projects. Controlling for project attributes that affect the level of outsourcing, we posit that a greater proportion of repeated partners and deeper relationships with these partners will result in greater revenue through winning bids, but that the prime contractor will not necessarily garner higher profits. We find support for these predictions, highlighting the trade-offs of repeated partnerships.
Keywords: repeated partners, transaction cost economics, buyer/supplier relationships, relational governance
JEL Classification: D23, L14, L2, L74
Suggested Citation: Suggested Citation