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From transaction cost economics to relationship marketing: a model of buyer-supplier relations

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  • Mudambi, Ram
  • Mudambi, Susan McDowell

Abstract

No matter what type of relationship a buyer has with a particular supplier, the buyer faces the decision of whether to either stay with the supplier or to switch to another supplier. This paper introduces a model of the buyer's switching decision that integrates tenets of both transaction cost economics and relationship marketing. The model analyzes how the switching decision is affected by parameters such as transaction-specific assets, information quality and the time dimension. The resulting Nash equilibria reflect strategies in which each player makes its optimal decision, taking into account the optimal decision of the other players. A sensitivity analysis of the effects of the parameters on the performance measures of price and profit provide intuitively sound results, and demonstrates how a common ground can be found between two schools of thought on buyer-supplier relations.

Suggested Citation

  • Mudambi, Ram & Mudambi, Susan McDowell, 1995. "From transaction cost economics to relationship marketing: a model of buyer-supplier relations," International Business Review, Elsevier, vol. 4(4), pages 419-433.
    • Handle: RePEc:eee:iburev:v:4:y:1995:i:4:p:419-433
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    References listed on IDEAS

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    1. Michael A. Cusumano & Akira Takeishi, 1991. "Supplier relations and management: A survey of Japanese, Japanese‐transplant, and U.S. auto plants," Strategic Management Journal, Wiley Blackwell, vol. 12(8), pages 563-588, November.
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    3. Pilling, Bruce K. & Crosby, Lawrence A. & Jackson, Donald Jr., 1994. "Relational bonds in industrial exchange: An experimental test of the transaction cost economic framework," Journal of Business Research, Elsevier, vol. 30(3), pages 237-251, July.
    4. Lohtia, Ritu & Brooks, Charles M. & Krapfel, Robert E., 1994. "What constitutes a transaction-specific asset? : An examination of the dimensions and types," Journal of Business Research, Elsevier, vol. 30(3), pages 261-270, July.
    5. Martin Ricketts, . "The Economics of Business Enterprise," Books, Edward Elgar Publishing, number 3121.
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    Cited by:

    1. Buckley, Peter J. & Craig, Thomas D. & Mudambi, Ram, 2019. "Time to learn? Assignment duration in global value chain organization," Journal of Business Research, Elsevier, vol. 103(C), pages 508-518.
    2. Lahiri, Somnath & Kedia, Ben L., 2009. "The effects of internal resources and partnership quality on firm performance: An examination of Indian BPO providers," Journal of International Management, Elsevier, vol. 15(2), pages 209-224, June.
    3. A. Gyau & A. Spiller, 2008. "The impact of supply chain governance structures on the inter-firm relationship performance in agribusiness," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 54(4), pages 176-185.
    4. Yadong Luo & Yi Liu & Jiaqi Xue, 2009. "Relationship Investment and Channel Performance: An Analysis of Mediating Forces," Journal of Management Studies, Wiley Blackwell, vol. 46(7), pages 1113-1137, November.
    5. Sheth, Jagdish N. & Parvatiyar, Atul & Sinha, Mona, 2012. "The conceptual foundations of relationship marketing: Review and synthesis," economic sociology. perspectives and conversations, Max Planck Institute for the Study of Societies, vol. 13(3), pages 4-26.

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