An Empirical Investigation of Bilateral Investments and Opportunism in Buyer-Supplier Relationships

Abstract

Collaboration between buyers and their suppliers often requires both parties to dedicate specialized investments to the relationship. These bilateral idiosyncratic investments serve as mutual hostages and signal commitment to the relationship, yet they are susceptible to expropriation. Drawing on research in social psychology and transaction cost economics, we argue that the nature of the bilateral idiosyncratic investments influences perceptions of a supplier's opportunism that in turn influences retailer opportunism and relationship outcomes. Data collected from 120 Norwegian managers of consumer electronics retail stores provide an assessment of the proposed model. The results indicate that the total and asymmetrical nature of the bilateral idiosyncratic investments influence perceptions of supplier opportunism and these perceptions, in turn, influence the retailer's opportunism and commitment to the relationship. Implications of these findings and future research are discussed.