The effect of vertical networks on channel governance adaptation: A transaction cost economics approach

This dissertation extends transaction cost economics by incorporating a network perspective to investigate the adaptation and safeguarding problems within a vertical network marketing channel. This dissertation extends the transaction cost economics perspective that dyadic relationships are not isolated transactions but are influenced by the network in which they reside and must adapt to structural changes in the network, thereby examining the boundary parameters of transaction cost economics. The adaptation of the governance structure to safeguard the specific assets of the buyer is necessitated by the addition of a new customer by a supplier in the buyer's supplier network. It is proposed that increased centrality of the supplier's new customer in the industry network will increase the buyer's uncertainty and influence the governance decision with the supplier. In addition, the density of the buyer's supplier network influences the governance decision by allowing the buyer to gather information and reduce the uncertainty caused by the addition of the supplier's new customer and reduce the governance cost with the individual supplier. The results of this dissertation provide evidence that dyadic relationships are influenced by the network in which they exist, and a deeper understanding of adaptive governance is gained when a network perspective is integrated with transaction cost economics logic. Four conclusions are drawn from the results of this dissertation. First, the transaction cost economics prescriptions of increased transaction asset specificity, behavioral uncertainty, and demand uncertainty in a buyer-supplier dyadic relationship lead to increased vertical coordination with a supplier are supported, providing nomological support and internal consistency of the model. Second, supplier new customers occupying a central position in the industry network increase the future buyer demand uncertainty in low demand uncertainty environments and moderate the dyadic governance concerning buyer asset specificity. Third, in low density buyer supplier networks, buyers increase the degree vertical coordination with the supplier in low buyer demand uncertainty and high buyer technological uncertainty environments. However, buyer supplier network density does not influence the buyer's degree of vertical coordination with the supplier concerning buyer asset specificity and behavioral uncertainty, indicating that buyers use their networks to reduce uncertainty external to the dyad but address concerns internal to the dyad directly with the supplier. Finally, buyer supplier network density has a significant influence on governance choice. In low density buyer supplier networks, buyers opted for market governance, and in high density buyer supplier networks, buyers choose to continue purchasing form the current supplier when a new customer is added by the supplier. The dissertation concludes with managerial implications and directions for future research.