From transaction cost economics to relationship marketing: a model of buyer-supplier relations

No matter what type of relationship a buyer has with a particular supplier, the buyer faces the decision of whether to either stay with the supplier or to switch to another supplier. This paper introduces a model of the buyer's switching decision that integrates tenets of both transaction cost economics and relationship marketing. The model analyzes how the switching decision is affected by parameters such as transaction-specific assets, information quality and the time dimension. The resulting Nash equilibria reflect strategies in which each player makes its optimal decision, taking into account the optimal decision of the other players. A sensitivity analysis of the effects of the parameters on the performance measures of price and profit provide intuitively sound results, and demonstrates how a common ground can be found between two schools of thought on buyer-supplier relations.