Price Formats for Branded Components in Industrial Markets: An Integration of Transaction Cost Economics and the Resource-Based View

In this paper, we propose an approach to show how the capability-based perspective of the resource-based view of the firm can be integrated with the comparative-governance approach of transaction cost economics to shed light on governance issues in interfirm relationships. We argue that transacting parties create value not only through the employment of partner-specific investment and coordination activities but also through the employment of heterogeneous, firm-specific resources that each firm brings to the relationship and that, in turn, governance structures reflect a discriminating alignment with these two distinct forms of value-creating activities and resources. Our thesis is empirically tested in the context of industrial original equipment manufacturers employing branded component contracts with independent component vendors. Specifically, we investigate the conditions under which the price terms for branded components are agreed upon (more fixed) ex ante versus negotiated (more flexible) ex post. Our results offer two insights. First, the chosen governance form reflects a trade-off between safeguarding and adaptation motives even among parties engaged in cooperative relationships. Second, valuable, firm-specific resources that preexist outside of the exchange relationship are at stake in these cooperative yet contractually incomplete relationships. They, together with relationship-specific investments and activities, have a significant impact on governance design.