Revisiting TSI: How TSI Contributes to the Buyer-Seller Relationship

Abstract

Transaction cost economics (TCE) explains that once specialized assets are made, safeguarding problems are created because the receivers are likely to behave opportunistically and expropriate the assets, which is considered a market failure. Due to this, most research on transaction-specific investments (TSI) has focused mainly on its risky properties for several decades. However, some unsupported hypotheses that do not fall in line with the transaction cost theory prediction and increasing cooperative interorganizational relationships require alternative explanations regarding TSI. The role of TSI should be reinvestigated as a bridge that bonds firms involved in transaction relationships, and should not be regarded only as a major reason causing conflict between firms. This paper proposes how TSI contributes to boosting trusting relationship between dyadic firms. More specifically, this paper proposes the relationship between TSI and information sharing, flexibility, and solidarity.