Inter-firm governance and structural power in industrial relationships: the moderating effect of bargaining power on the contractual safeguarding of specific assets

In the basic model of transaction cost analysis (TCA), neither market power nor power based on resource-dependence plays a significant role. In this article, we extend the TCA-perspective by combining resource-dependence theory (RDT) and TCA, and examine whether the buyer's bargaining power influences the alignment of the contractual safeguarding of buyer-specific and supplier-specific investments. Data from a survey of 160 industrial purchasing relationships provide empirical support for our theoretical predictions.The empirical findings demonstrate that the buyer's bargaining power does interfere with the safeguarding of relations-specific assets. As the buyer's relative bargaining power increases, the safeguarding of buyer-specific assets is substantially reinforced. On the other hand, the contractual protection of supplier-specific assets is significantly relaxed as the buyer's bargaining power grows.Our findings indicate that there is a tension between the alignment of contractual safeguarding arrangements and structural power in inter-firm business, and that resource-dependence considerations offer an important complement to TCA when we consider the transacting parties’ ability to provide contractual safeguards for assets at risk.Further, the findings indicate that the establishment of relational ties in long-term relationships is an important antecedent to governance structure. The empirical findings demonstrate that the longer a business-to-business relationship lasts, the more the contractual governance is relaxed.