Allocation of specific assets, relationship duration, and contractual safeguarding in buyer-seller relationships

Abstract

This study explores the interaction effect of bilateral dependency and relationship duration on contractual safeguarding. In particular, the study compares how the allocation of specific assets, unilateral or mutual, affects contractual safeguarding across buyer-seller relationships with short versus long prior history. Data from a survey of 157 industrial purchasing relationships demonstrates that unilateral investments in specific assets by either the buyer or the supplier are more strongly supported by contractual safeguarding as the length of the relationship is increased. On the other hand, contractual safeguarding of mutually deployed specific assets is significantly relaxed as relationships evolve over time. Keywords: Transaction costs; Asset specificity; Contractual safeguarding; Relationship duration