Ex ante governance decisions in inter-organizational relationships: A case study in the airline industry

Abstract

This paper discusses the theory behind ex ante governance decisions in inter-organizational relationships and uses an explanatory case study involving an inter-firm relationship between two European airlines to empirically assess the theoretical propositions. The case study complements existing literature by providing a comprehensive explanation of opportunism-based ex ante governance decisions. It deconstructs opportunism, links such behavior to unique governance responses and discusses the ex post effects of ex ante governance decisions in light of the necessary development of trust and relational governance mechanisms. In this context, it also takes account of differences in bargaining power between the two partners and examines the “control strategy” employed by the dominant partner. The paper offers further insights into the influence of bargaining power on governance decisions by illustrating how cooperating partners can address ex ante power differences. An interesting finding from this case study is the fact that the more powerful of the two partners deliberately relinquished the advantages associated with its ex ante privileged position. It accepted a governance structure that virtually equalized positions to motivate its weaker partner to participate and stimulate the development of trust.