Abstract
To date, no published study has measured the evolution of supply chain structure and relationships in response to changing product-market development requirements. This research draws upon production literature and exchange governance theory to simulate the interaction of supply and demand environment factors on the growth and development of supply chain relationships. Experiments were conducted to study the effects of different rates of product change, different demand environments, and different economies of scale on the level of integration between firms at different levels in the supply chain. It synthesizes the interrelationships of the simulation variables in order to extend TCA theory into a dynamic network environment by using the CAS paradigm. The study reveals definite patterns of evolution under conditions of differing product-market conditions, it confirms the importance of the balancing transaction and production costs, and it highlights the asymmetries of transactional and production costs in relationships.
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