Transaction Cost Economics, Firm Power, and Negotiation Strategies: An Empirical Study of Buyer-Supplier Relationships in the Oil and Gas Industry

Abstract

There are two main research purposes in this dissertation. First, it aims to refine transaction cost economics (TCE) by including the scope condition of power structure in the TCE framework. This study develops a model based on TCE and interfirm power theory. It proposes that power structuremoderates the effect of specific investments on governance modes. Second, this study investigates the interplay of governance modes and negotiation strategies. Building on TCE and negotiation theory, the study proposes that the interaction between governance modes and negotiation strategies influences the performance of relationship. The hypotheses were empirically tested on a sample of 198 inter-firm relationships in the Norwegian oil and gas industry. Data were collected through a survey of oil and gas supplier firms With regard to the refinement of TCE, the results yielded mixed support for the hypotheses, indicating that the TCE prediction does not work well for all types of firms. First, it works well for firms with low power in asymmetric-power relationships. Second, it works better for firms in asymmetric-power relationships than for firms in symmetric-power relationships. Third, TCE works better for firms in no-interdependent relationships than for firms in mutualdependent relationships. With regard to the interplay of governance modes and negotiation strategies, the hypotheses were partly supported. First, the results indicated that problem-solving negotiation strategy enhances the positive effect of centralization on end-product enhancement outcomes. Second, contrary to expectation, information exchange was found to hinder the positive effect of problem-solving negotiation strategy on the same outcomes. The findings indicate that (a) power structure should be included in the TCE framework to improve the prediction ability of TCE and (b) relationship performance can be explained by the interplay of governance modes and negotiation strategies. One finding, however, raises a new question: to what extent does the firm’s use of information exchange (various types of information) have a negative moderating effect on the association between problem-solving negotiation strategy and end-product enhancement outcomes?