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This file was downloaded from BI Open, the institutional repository at BI Norwegian
Business School https://biopen.bi.no.
It contains the accepted and peer reviewed manuscript to the article cited below. It may
contain minor differences from the journal's pdf version.
Wathne, K. H., Heide, J. B., Mooi, E. A., & Kumar, A. (2018). Relationship Governance
Dynamics: The Roles of Partner Selection Efforts and Mutual Investments. Journal of
Marketing Research, 55(5), 704–721. https://doi.org/10.1177/0022243718801325
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Relationship Governance Dynamics:
The Role of Partner Selection Efforts and Mutual Investments
Kenneth H. Wathne*
Jan B. Heide
Erik A. Mooi
Alok Kumar
April, 2018
Kenneth H. Wathne is Professor of Marketing, University of Stavanger Business School, Elise
Ottesen-Jensens hus, 4036 Stavanger, Norway, and Adjunct Professor, BI Norwegian Business
School. Phone +47 97483315, fax +47 51833750, email: kenneth.h.wathne@uis.no. Jan B. Heide
is Irwin Maier Chair in Marketing, School of Business, University of Wisconsin-Madison, 975
University Avenue, Madison, WI 53706-1323, and Professorial Fellow, Department of
Marketing and Management, University of Melbourne. He is also a Senior Research Associate,
Judge Business School, University of Cambridge. Phone (608) 262-5224, fax (608) 262-0394, e-
mail: jheide@bus.wisc.edu. Erik A. Mooi is senior lecturer in Marketing, University of
Melbourne, Parkville, VIC, 3010, Australia. Phone +6138344 1273, fax: +61 393494293, email:
erik.mooi@unimelb.edu.au. Alok Kumar is Associate Professor of Marketing, College of
Business, University of Nebraska–Lincoln, Lincoln, NE 68588-0492. Phone (402) 472-3378, fax
(402) 472-9777, email: akumar5@unl.edu. This article has benefited from comments by seminar
participants at the University of Cardiff, University of Illinois, University of Houston, University
of Kentucky, University of Leeds, McMaster University, University of Melbourne, University of
Nebraska-Lincoln, University of North Carolina-Chapel Hill, Texas A&M University, and
Tulane University. The authors contributed equally.
*Corresponding author
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Relationship Governance Dynamics:
The Roles of Partner Selection Efforts and Mutual Investments
ABSTRACT
To explicate interfirm governance in the context of supplier–reseller relationships, this article
reports on a longitudinal study conducted to examine the roles of supplier selection efforts and
mutual specific investments, with respect to motivating a supplier to make incremental
investments, as well as safeguarding the investments from supplier ex post transaction costs. The
authors also examine the joint effects of selection efforts and mutual investments on supplier ex
post transaction costs. From a practical standpoint, the findings suggest new guidelines for
channel strategy. Theoretically, they provide new insights into relationship dynamics and offer
evidence about the effects of a firm’s governance choices over time.
Keywords: channel relationships, governance, transaction cost economics, selection efforts,
mutual investments
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Channel relationships are cornerstones of firms’ marketing strategies (Anderson and
Coughlan 2002; Ghosh and John 2012). However, productive relationships between suppliers
and resellers do not simply emerge on their own. Rather, they result from relationship
governance arrangements that promote value creation and minimize transaction costs (e.g.,
Geyskens, Steenkamp, and Kumar 2006; Kashyap, Antia, and Frazier 2012). Williamson (2010),
building on early institutional economics research by Commons (1934), defines governance as
“the means by which to infuse order, thereby to mitigate conflict, and realize mutual gain” (p.
674). As evidenced by a large and growing body of research, this definition comprises some
different phenomena, including specific governance actions or mechanisms that can be purposely
deployed (Anderson and Weitz 1992) but also governance structures that emerge over time in a
relationship (Heide and John 1988). For the current study, we capture the former as a supplier’s
initial efforts to select a reseller with particular characteristics, using purposeful qualification
efforts (Antia, Mani, and Wathne 2017; Bergen, Dutta, and Walker 1992). We assess the latter as
the parties’ mutual transaction-specific investments (Williamson 1983). Although selection
efforts and mutual investments work in different ways and reflect different sources of transaction
costs, they both can create “order,” in the sense of Williamson’s (2010) definition, and thus
contribute to value creation in a distribution channel.
We take the supplier’s perspective and examine two outcomes of its governance choices.
First, we posit that its reliance on selection efforts and mutual investments motivate incremental
investments by the supplier in the reseller relationship. Despite the important role of specific
investments for realizing particular value propositions and achieving competitive advantages
(Ghosh and John 1999), our understanding of them remains incomplete. Perhaps most notably,
prior governance research tends to capture specific investments cross-sectionally, as an aggregate
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stock of assets, without accounting for the manner in which they accumulate. By focusing on
incremental investments, we address how the supplier’s willingness to augment its existing stock
of assets follows from its prior selection efforts and preexisting patterns of specific relationship
investments.
Second, we explore how partner selection efforts and mutual investments might
safeguard the supplier’s incremental investments over time from efficiency losses due to supplier
ex post transaction costs. Specific investments have significant value-creation potential (Ghosh
and John 1999), but they cannot be easily redeployed, so they also involve considerable risk
(Williamson 1985). This general safeguarding problem is well documented (e.g., Heide and John
1988), but it is less clear whether firms’ governance choices, once made, exert influences over
time. For example, do the benefits of selection efforts, applied at the outset of a relationship,
remain manifest in later periods? Do mutual investments, once committed, have ongoing
governance effects? With some notable exceptions (e.g., Klein 1996), past research has paid little
attention to questions of governance dynamics. An implicit assumption, rarely tested empirically,
indicates that a given governance arrangement, once in place, continues to exert its effect over
the course of a relationship. From a practical perspective, governance dynamics have important
potential implications: Evidence of ongoing effects would suggest the arrangement is associated
with governance economies, whereas a lack of such persistent effects would suggest that
continued reliance on the focal arrangement is risky for the firm.
In turn, we seek to make two specific contributions. First, we respond to calls for greater
attention to the dynamics of relationship governance (e.g., Jap and Anderson 2003; Rindfleisch
et al. 2010). We consider two aspects of dynamism, namely, whether a firm’s prior governance
choices (1) motivate incremental investments and (2) serve as buffers against supplier ex post
