The preference for intermediate governance over market contracting: A transaction cost perspective

Consistent with the rising importance of buyer-seller relationships, this study examined factors which may influence the attractiveness of long-term exchange relationships. A conceptual model, based on transaction cost economics and contract law, was applied to manufacturer-supplier relationships in a business-to-business setting. A factorial design tested industrial purchasers' preference for close and long-term working relationships with suppliers over impersonal transactions mediated by market forces. Several variables were tested for their potential impact on the attractiveness of long-term exchange associations (intermediate governance.) These were specialized investments required to meet the manufacturers' needs, environmental uncertainty surrounding the exchange, and frequency of occurrence of exchanges between the manufacturer and supplier. These variables were predicted to affect both the manufacturers' overall attitude toward the attractiveness of long-term relationships, and their willingness to engage in specific exchange behaviors (such as exchange of information and sharing of benefits and burdens) which would occur in support of long-term relationships. The model examined the direct impact of the experimental treatments on attitude and willingness, as well as their indirect impact as mediated by buyers' perceptions of anticipated transaction costs. Anticipated transaction costs refer to the costs of setting up, monitoring, and enforcing the terms of an exchange situation.;The model was tested within the electronic, aerospace, and defense industries. The conceptual model was generally supported. Anticipated transaction costs were influenced by the experimental treatments. The treatments also exhibited a direct impact on willingness and attitude. Anticipated transaction costs were also significantly linked to attitude and willingness. The role of anticipated transaction costs as a mediating variable was partially supported.