The Moderating Role of Trust in Determining Manufacturer’s Vertical Control and Satisfaction with Supplier Performance

Although the Transaction Cost Analysis framework (TCA) has been dominant in explaining inter-firm relationships, TCA has been criticized for ignoring the social embeddedness of inter-firm relationships. It is proposed that the inclusion of trust in TCA supplements the explanations offered by TCA on buyer behaviors in buyer-seller relationships. The empirical findings suggest trust functions as a moderating variable in the relationships between environmental uncertainty and a manufacturer's propensity for vertical control over its supplier's decisions, and between environmental uncertainty and the manufacturer's satisfaction with the supplier performance. However, the moderating role of trust is found to be present up until a threshold value of trust is reached: the moderating effect is statistically significant at lower levels while the significant effect fades away at higher levels of trust. This study, thus, confirms a threshold effect of trust in inter-firm relationships as suggested but not explicitly tested in the marketing literature.