Lumineau, Fabrice and Malhotra, Deepak (2011): Shadow of the contract: how contract structure shapes inter-firm dispute resolution. Published in: Strategic Management Journal , Vol. 5, No. 32 (2011)
Download (228kB) | Preview
This paper investigates how contract structure influences inter-firm dispute resolution processes and outcomes by examining a unique dataset consisting of over 150,000 pages of documents relating to 102 business disputes. We find that the level of contract detail affects the type of dispute resolution approach that is adopted when conflict arises, and that different approaches are associated with different costs for resolving the dispute. We also find that the effect of contract choice on dispute resolution approach is moderated by the degree of coordination required in the relationship, and that the effect of dispute approach on costs is moderated by the degree of power asymmetry between the parties. Thus, even after controlling for various attributes of the exchange relationship and the dispute, the choice of contracting structure has important strategic implications.
|Item Type:||MPRA Paper|
|Original Title:||Shadow of the contract: how contract structure shapes inter-firm dispute resolution|
|Keywords:||Contractual Governance; Disputes; Framing; Interest-Based Negotiation and Rights-Based Negotiation; Control and Coordination; Power|
|Subjects:||L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L14 - Transactional Relationships; Contracts and Reputation; Networks
K - Law and Economics > K4 - Legal Procedure, the Legal System, and Illegal Behavior > K40 - General
K - Law and Economics > K4 - Legal Procedure, the Legal System, and Illegal Behavior > K42 - Illegal Behavior and the Enforcement of Law
L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L22 - Firm Organization and Market Structure
K - Law and Economics > K4 - Legal Procedure, the Legal System, and Illegal Behavior > K41 - Litigation Process
M - Business Administration and Business Economics; Marketing; Accounting > M1 - Business Administration > M10 - General
|Depositing User:||Fabrice Lumineau|
|Date Deposited:||25. Apr 2012 12:25|
|Last Modified:||13. Feb 2013 00:21|
Adair W, Brett J. 2005. The negotiation dance: time, culture, and behavioral sequences in negotiation. Organization Science 1: 33–51.
Aiken LS, West LG. 1991. Multiple Regression: Testing and Interpreting Interactions. Sage: Newbury Park, CA.
Anand B, Khanna T. 2000. Do firms learn to create value? The case of alliances. Strategic Management Journal 21: 295–315.
Argyres NS, Bercovitz J, Mayer KJ. 2007. Complementarity and evolution of contractual provisions: an empirical study of IT services contracts. Organization Science 18(1): 3–19.
Axelrod R. 1984. The Evolution of Cooperation. Basic Books: New York.
Baron RM, Kenny DA. 1986. The mediating-moderator variables distinction in social psychological research: conceptual, strategic and statistical considerations. Journal of Personality and Social Psychology 51: 1173–1182.
Barthélemy J, Quélin BV. 2006. Complexity of outsourcing contracts and ex post transaction costs: an empirical investigation. Journal of Management Studies 43(8): 1775–1797.
Bascle G. 2008. Controlling for endogeneity with instrumental variables in strategic management research. Strategic Organization 6: 285–327.
Bazerman M, Moore D. 2008. Judgment in Managerial Decision Making. 7th ed. John Wiley and Sons, Inc.
Bernheim BD, Whinston MD. 1998. Incomplete contracts and strategic ambiguity. American Economic Review 88(4): 902–932.
Brass DJ. 1984. Being in the right place: a structural analysis of individual influence in an organization. Administrative Science Quarterly 29: 518–539.
Brett JM, Barsness ZI, Goldberg SB. 1996. The effectiveness of mediation: an independent analysis of cases handled by four major service providers. Negotiation Journal 12(3): 259–269.
Brett JM, Goldberg SB, Ury WL. 1990. Designing systems for resolving disputes in organizations. American Psychologist 45: 162–170.
Brewer MB, Kramer RM. 1986. Choice behavior in social dilemmas: effects of social identity, group size, and decision framing. Journal of Personality and Social Psychology 50: 543–49.
Brown JR, Dev CS, Lee DJ. 2000. Managing marketing channel opportunism: the efficacy of alternative governance mechanisms. Journal of Marketing 64(2): 51–65.
Casciaro T. 2003. Determinants of governance structure in alliances: the role of strategic, task and partner uncertainties. Industrial and Corporate Change 12(6): 1223–1251.
Casciaro T, Piskorski MJ. 2005. Power imbalance, mutual dependence, and constraint absorption: a closer look at resource dependence theory. Administrative Science Quarterly 50: 167–199.
Crocker KJ, Reynolds KJ. 1993. The efficiency of incomplete contracts: an empirical analysis of Air Force engine procurement. RAND Journal of Economics 24(1): 126–146.
Daft RL, Weick KE. 1984. Toward a model of organizations as interpretation systems. Academy of Management Review 9(2): 284–295.
David R, Han S. 2004. A systematic assessment of the empirical support for transaction cost economics. Strategic Management Journal 24(1): 39–59.
De Dreu CKW. 1995. Coercive power and concession making in bilateral negotiation. Journal of Conflict Resolution 39(4): 646–670.
De Dreu CKW, Nauta A, Van de Vliert VD. 2006. Self-serving attributions of conflict behavior and escalation of the dispute. Journal of Applied Social Psychology 25(23): 2049–2066.
Deeds DL, Hill CWL. 1999. An examination of opportunistic action within research alliances: evidence from the biotechnology industry. Journal of Business Venturing 14: 141–163.
Dwyer RR, Schurr PH, Oh S. 1987. Developing buyer-seller relationships. Journal of Marketing, 51(April): 11–27.
Dwyer FR, Walker OC. 1981. Bargaining in an asymmetrical power structure. Journal of Marketing 45: 104–115.
Dyer JH. 1997. Effective interfirm collaboration: how firms minimize transaction costs and maximize transaction value. Strategic Management Journal 18(7): 535–556.
Emerson R. 1962. Power-dependence relations. American Sociological Review 27(1): 31–41.
Fisher R, Ury W, Patton B. 1981. Getting to Yes: Negotiating Agreement Without Giving In. Penguin Books: New York.
Fiske ST, Taylor SE. 1991. Social Cognition. McGraw Hill: New York.
Fiss PC, Zajac EJ. 2006. The symbolic management of strategic change: sensegiving via framing and decoupling. Academy of Management Journal 49(6): 1173–1193.
Fouraker L, Siegel S. 1963. Bargaining Behavior. McGraw Hill: New York.
Galinsky AD, Magee JC, Inesi ME, Gruenfeld DH. 2006. Power and perspectives not taken. Psychological Science 17(12): 1068–1074.
Gaski JF. 1984. The theory of power and conflict in channels of distribution, Journal of Marketing 48(3): 9–30.
Granovetter M. 1985. Economic action and social structure: the problem of embeddedness. American Journal of Sociology 91: 481–510.
Grossman S, Hart O. 1986. The costs and benefits of ownership: a theory of vertical and lateral integration. Journal of Political Economics 94: 691–719.
Gulati R. 1995. Social structure and alliance formation patterns: a longitudinal analysis. Administrative Science Quarterly 40(4): 619–652.
Gulati R. 1999. Network location and learning: the influence of network resources and firm capabilities on alliance formation. Strategic Management Journal 20(5): 397–420.
Gulati R, Lavie D, Singh H. 2009. The nature of partnering experience and the gains from alliances. Strategic Management Journal 30(9): 1213–1233.
Gulati R, Lawrence PR, Puranam P. 2005. Adaptation in vertical relationships: beyond incentive conflict. Strategic Management Journal 26(5): 415–440.
Gulati R, Nickerson J. 2008 Interorganizational trust, governance choice, and exchange performance. Organization Science 19: 688–708.
Gulati R, Sytch M. 2007. Dependence asymmetry and joint dependence in interorganizational relationships: effects of embeddedness on a manufacturer’s performance in procurement relationships. Administrative Science Quarterly 52: 32–69.
Gundlach GT, Achrol RS. 1993. Governance in exchange: contract law and its alternatives. Journal of Public Policy & Marketing 12(2): 141–155.
Gundlach GT, Achrol RS, Mentzer JT. 1995. The structure of commitment in exchange. Journal of Marketing 59: 78–92.
Gundlach GT, Murphy PE. 1993. Ethical and legal foundations of relational marketing exchanges. Journal of Marketing 57: 35–46.
Hagedoorn J, Hesen G. 2009. Contractual complexity and the cognitive load of R&D alliance contracts. Journal of Empirical Legal Studies 6: 867–903.
Hamilton B, Nickerson JA. 2003. Correcting for endogeneity in strategic management research. Strategic Organization 1(1): 51–78.
Harms WF. 2004. Information and Meaning in Evolutionary Processes. Cambridge University Press: Cambridge.
Heide JB. 1994. Interorganizational governance in marketing channels. Journal of Marketing 58: 71–85.
Heide JB, John G. 1992. Do norms matter in marketing relationships? Journal of Marketing 56(2): 32–44.
Heide JB, Miner AS. 1992. The shadow of the future: effects of anticipated interaction and frequency of contact on buyer-seller cooperation. Academy of Management Journal 35(2): 265–291.
Heide JB, Wathne KH. 2006. Friends, businesspeople, and relationship roles: a conceptual framework and a research agenda. Journal of Marketing 70(3): 90–103.
Hoetker G, Mellewigt T. 2009. Choice and performance of governance mechanisms: matching alliance governance to asset type. Strategic Management Journal 30(10): 1025–1044.
Jap SD, Ganesan S. 2000. Control mechanisms and the relationship life cycle: implication for safeguarding specific investments and developing commitment. Journal of Marketing Research 37: 227–245.
Jauch LR, Osborn RN, Martin TN. 1980. Structured content analysis of cases: a complimentary method for organizational research. Academy of Management Journal 5: 517–526.
Kogut B. 1988. Joint ventures: theoretical and empirical perspectives. Strategic Management Journal 9(4): 319–332.
Lax DA, Sebenius JK. 1986. The Manager as Negotiator: Bargaining for Cooperative and Competitive Gain. The Free Press: New York.
Lax DA, Sebenius JK. 2006. 3-D Negotiation: Powerful Tools to Change the Game in Your Most Important Deals. Harvard Business School Press: Boston, MA.
Lewicki RJ, McAllister DJ, Bies RJ. 1998. Trust and distrust: new relationships and realities. Academy of Management Review 23: 438–458.
Li JJ, Poppo L, Zhou KZ. 2010. Relational mechanisms, formal contracts, and local knowledge acquisition by international subsidiaries. Strategic Management Journal 31(4): 349–370.
Lin X, Germain R. 1998. Sustaining satisfactory joint venture relationships: the role of conflict resolution strategy. Journal of International Business Studies 29(1): 179–196.
Lui SS, Ngo HY. 2004. The role of trust and contractual safeguards on cooperation in non-equity alliances. Journal of Management 30(4): 471–485.
Luo Y. 2002. Contract, cooperation, and performance in international joint ventures. Strategic Management Journal 23(10): 903–919.
Lusch RF, Brown JR. 1996. Interdependency, contracting and relational behavior in marketing channels. Journal of Marketing 60: 193–38.
Lyons B, Mehta J. 1997. Contracts, opportunism and trust: self-interest and social orientation. Cambridge Journal of Economics 21(2): 239–257.
Lytle AL, Brett JM, Shapiro DL. 1999. The strategic use of interests, rights, and power to resolve disputes. Negotiation Journal 15(1): 31–51.
Macaulay S. 1963. Non-contractual relations in business. American Sociological Review 28: 55–70.
Macneil IR. 1980. The New Social Contract: An Inquiry into Modern Contractual Relations. Yale University Press: New Haven, CT.
Malhotra D. 2009. When contracts destroy trust. Harvard Business Review 27(5): 25.
Malhotra D. 2010. The desire to win: the effects of competitive arousal on motivation and behavior. Organizational Behavior and Human Decision Processes 111: 139–146.
Malhotra D, Bazerman, MH. 2007. Negotiation Genius: How to Overcome Obstacles and Achieve Brilliant Results at the Bargaining Table and Beyond. Bantam Books: New York.
Malhotra D, Ku G, Murnighan JK. 2008. When winning is everything. Harvard Business Review 86(5): 78–86.
Malhotra D, Murnighan JK. 2002. The effects of contracts on interpersonal trust. Administrative Science Quarterly 47(3): 534–559.
March JG. 1994. A Primer on Decision Making. How Decisions Happen. Free Press: New York.
Mayer KJ, Argyres NS. 2004. Learning to contract: evidence from the personal computer industry. Organization Science 15(4): 394–410.
McAlister L, Bazerman MH, Fader P. 1986. Power and goal-setting in channel negotiations. Journal of Marketing Research 23(3): 228–236.
McCusker C, Carnevale PJ. 1995. Framing in resource dilemmas: loss aversion and the moderating effects on sanctions. Organizational Behavior and Human Decision Processes 61: 190–201
Mellewigt T, Madhok A, Weibel A. 2007. Trust and formal contracts in interorganizational relationships—substitutes and complements. Managerial and Decision Economics 28(8): 833–847.
Miller DT, Ross M. 1975. Self-serving biases in attribution of causality: fact or fiction. Psychological Bulletin 82(2): 213–225.
Ness H, Haugland SA. 2005. The evolution of governance mechanisms and negotiation strategies in fixed-duration interfirm relationships. Journal of Business Research 58: 1226–1239.
Noorderhaven GN. 2005. Introduction to the special section on structure and process in alliance research. European Management Review 2: 103.
Nooteboom B. 1996. Trust, opportunism and governance: a process and control model. Organization Studies 17(6): 985–1010.
Ouchi WG. 1979. A conceptual framework for the design of organizational control mechanisms. Management Science 25(9): 833–848.
Park SH, Ungson GR. 2001. Interfirm rivalry and managerial complexity: a conceptual framework of alliance failure. Organization Science 12(1): 37–53.
Parkhe A. 1993. Strategic alliance structuring: a game theoretic and transaction cost examination of interfirm cooperation. Academy of Management Journal 36(4): 794–829.
Pinkley RL. 1990. Dimensions of conflict frame: disputant interpretations of conflict. Journal of Applied Psychology 75(2): 117–126.
Pinkley RL, Northcraft GB. 1994. Conflict frames of reference: implications for dispute processes and outcomes. Academy of Management Journal 37(1): 193–205.
Piskorski MJ, Casciaro T. 2006. When more power makes actors worse off: turning a profit in the American economy. Social Forces 85(2): 1011–1036.
Poppo L, Zenger T. 2002. Do formal contracts and relational governance function as substitutes or complements? Strategic Management Journal 23(8): 707–726.
Poppo L, Zhou KZ, Ryu S. 2008. Alternative origins to interorganizational trust: an interdependence perspective on the shadow of the past and the shadow of the future. Organization Science 19(1): 39–55.
Raiffa H. 1982. The Art and Science of Negotiation. Harvard University Press: Cambridge, MA.
Reger RK, Gustafson LT, DeMarie SM, Mullane JV. 1994. Reframing the organization: why implementing total quality is easier said than done. Academy of Management Review 19(3): 565–584.
Reich R, Mankin J. 1986. Joint-ventures with Japan give away our future. Harvard Business Review 64(2): 78–86.
Reuer J, Ariño A. 2002. Contractual renegotiations in strategic alliances. Journal of Management 28(1): 47–68.
Reuer J, Ariño A. 2007. Strategic alliance contracts: dimensions and determinants of contractual complexity. Strategic Management Journal 28(3): 313–330.
Reuer J, Ariño A, Mellewigt T. 2006. Entrepreneurial alliances as contractual forms. Journal of Business Venturing 21(3): 306–325.
Ring PS, Van de Ven AH. 1992. Structuring cooperative relationships between organizations. Strategic Management Journal 13(7): 483-498.
Ring PS, Van de Ven AH. 1994. Developmental processes of cooperative interorganizational relationships. Academy of Management Review 19(1): 90–118.
Rousseau DM. 1995. Promise in Action: Psychological Contracts in Organizations. Sage Publications: Newbury Park, CA.
Ryall MD, Sampson R. 2009. Repeated interaction and contract structure: evidence from technology development contracts. Management Science 55(6): 906–925.
Salbu SR. 1997. Evolving contract as a device for flexible coordination and control. American Business Law Journal 34(3): 329–384.
Saussier S. 2000. Transaction costs and contractual incompleteness: the case of Électricité de France. Journal of Economic Behavior and Organization 42: 189–206.
Schweitzer M, DeChurch L. 2001. Linking frames in negotiations: gains, losses and conflict frame adoption. International Journal of Conflict Management 12(2): 100–113.
Simon HA. 1961. Administrative Behavior. 2nd ed. Macmillan: New York.
Sitkin SB, Roth NL. 1993. Explaining the limited effectiveness of legalistic ‘remedies’ for trust/distrust. Organization Science 4: 367–392.
Smitka MJ. 1994. Contracting without contracts: how the Japanese manage organizational transactions. In The Legalistic Organization. Sitkin SB, Flies RJ (eds). Sage: Thousand Oaks, CA; 91–109.
Spence A.M. 1974. Market Signaling, Information Transfer in Hiring and Related Processes. Harvard University Press: Cambridge, MA.
Stinchcombe AL. 1986. Norms of exchange. In Stratification and Organization. Stinchcombe AL (ed). Cambridge University Press: Cambridge, UK; 231–267.
Tenbrunsel AE, Messick DM. 1999. Sanctioning systems, decision frames, and cooperation. Administrative Science Quarterly 44(4): 684–707.
Thompson L. 1991. Information exchange in negotiation. Journal of Experimental Social Psychology 27: 61–179
Tversky A, Kahneman D. 1981. The framing of decisions and the psychology of choice. Science 211: 453–458.
Ury WL, Brett JM, Goldberg SB .1988. Getting Disputes Resolved. Jossey Bass Publishers.
Uzzi B. 1997. Social structure and competition in interfirm networks: the paradox of embeddedness. Administrative Science Quarterly 42(1): 35–67.
Vlaar P, Van Den Bosch F, Volberda H. 2006. Coping with problems of understanding in interorganizational relationships: using formalization as a means to make sense. Organization Studies 27(11): 1617–1638.
Weber RP. 1990. Basic Content Analysis. Sage: Thousand Oaks, CA.
White III GO, Joplin JRW, Salama MF. 2007. Contracts and conflict resolution strategies in foreign ventures: a transaction cost perspective. International Journal of Conflict Management 18(4): 376–390.
Williamson OE. 1985. The Economic Institutions of Capitalism. Free Press: New York.
Williamson OE. 1991. Comparative economic organization: the analysis of discrete structural alternatives. Administrative Science Quarterly 36(2): 269–296.
Williamson OE. 1996. Transaction cost economics and organization theory. In The Handbook of Economic Sociology, Smelser NJ, Swedberg R (eds.). Princeton University Press: Princeton, NJ; 77–107.
Woolthuis RK, Hillebrand B, Nooteboom B. 2005. Trust, contract and relationship development. Organization Studies 26(6): 813–840.
Zaheer A, Venkatraman N. 1995. Relational governance as an interorganizational strategy: an empirical test of the role of trust in economic exchange. Strategic Management Journal 16(5): 373–392.