Multimarket Contact and the Use of Power in Buyer–Supplier Relationships

• Published date: 01 March 2017
• Date: 01 March 2017
• DOI: http://doi.org/10.1111/jbl.12155

Multimarket Contact and the Use of Power in Buyer–Supplier

Relationships

Felix Reimann, Pei Shen, and Lutz Kaufmann

WHU –Otto Beisheim School of Management

Buyers and suppliers often have multiple business relationships with each other across different geographical and product markets, forming

a potentially complex web of connections. What happens between the firms in one geographical or product market may influence their

interactions in others. Prior research in strategic management has found that similar multimarket contact in horizontal relationships between

competitors has important consequences for the firms’use of market power. However, the consequences of multimarket contact in vertical

buyer–supplier relationships remain unexplored. Building on resource-advantage theory, this study proposes that multimarket contact between

buyers and suppliers is linked to their respective propensity to use three types of mediated power in their relationships (i.e., reward, coercion,

and legal legitimate) and that the effects of multimarket contact differ between buyers and suppliers. A vignette study with 143 purchasing man-

agers and 137 business-to-business sales managers tests the developed hypotheses. The findings show that a higher level of multimarket contact

encourages suppliers to use legal legitimate power to a greater extent and encourages buyers to use reward power to a greater extent but legal

legitimate power to a lesser extent.

Keywords: buyer–supplier relationship; multimarket contact; resource-advantage theory; power

INTRODUCTION

Large firms in the supply chain are frequently linked by multiple

business relationships, across different geographical and product

markets, forming a potentially complex web of connections

between the two firms (Homburg et al. 2002; Zupancic and

M€

ullner 2008; Trautmann et al. 2009). Despite many firms’

efforts to centralize their purchasing and marketing/sales activi-

ties, these buyer–supplier relationships are still often managed on

the business unit level (Wengler et al. 2006; Hartmann et al.

2008), making the exchanges on individual markets organization-

ally distinct but interconnected (Martin and Eisenhardt 2010).

What happens in the relationship between one of the firm’s busi-

ness units and a particular supplier or buyer may also influence

the firm’s interactions in other markets. For example, when a

business unit considers using power to pressure a supply chain

partner, to capture a larger share of value (Crook and Combs

2007; Terpend and Krause 2015), it also needs to take into

account the other firm’s potential reactions in other markets and

the consequences for the overall relationship between the two

firms.

The literature has investigated similar interdependencies

between competitors, on a horizontal level under a concept

called “multimarket contact”(for a comprehensive review, see

Yu and Cannella 2013).Studies in the strategic management lit-

erature have found that multimarket contact between competing

firms has important consequences for competitive behavior, in

that it reduces firms’propensity to use market power in each of

the markets in which both firms do business (e.g., Yu et al.

2009; Ciliberto and Williams 2014; Skilton and Bernardes 2015).

The reason, according to multimarket theory, is that fear of

retaliation in other markets deters firms from aggressively using

their power in any one market (Yu and Cannella 2013).

For vertical buyer–supplier relationships, however, potential

links between multimarket contact and power use still remain

unexplored, even though the use of power is a common practice

for claiming value in buyer–supplier relationships and an exten-

sive field of literature has explored antecedents and consequences

to the use of power in the supply chain (e.g., Maloni and Benton

2000; Zhao et al. 2008; Handley and Benton 2012a; Pulles et al.

2014). Given that multimarket contact is an important antecedent

of power use in horizontal relationships between competitors,

neglecting its potential impact on the use of power in the supply

chain may limit understanding of how buyers and suppliers deal

with each other and how their interactions evolve as their rela-

tionships become more complex. Addressing this void, this study

aims to introduce the notion of multimarket contact to the litera-

ture on power in the supply chain. In particular, it explores the

following research questions: Does multimarket contact influence

buyers’and suppliers’use of mediated power? Does such influ-

ence differ for different types of mediated power, and does it dif-

fer depending on whether a firm is the buyer or supplier in the

respective relationship?

For this study, multimarket contact between buyers and suppli-

ers refers to a situation in which at least two business units of a

firm have business relationships with the same supply chain part-

ner. A higher level of multimarket contact reflects a higher num-

ber of business unit relationship dyads between a buying firm

and a supplying firm (Yu and Cannella 2013). Power in buyer–

supplier relationships represents the ability of one partner to

influence the behavior of the other partner as a result of the lat-

ter’s dependence on the former (Emerson 1962; Narasimhan

et al. 2009; Pulles et al. 2014). This study focuses on mediated

power, such as reward, coercion, and legal legitimate power,

because only these types of power can be consciously used by

the involved firms (Handley and Benton 2012b; Pulles et al.

2014).

Corresponding author:

Felix Reimann, WHU –Otto Beisheim School of Management, Burg-

platz 2, 56179 Vallendar, Germany; E-mail: felix.reimann@whu.edu

Journal of Business Logistics, 2017, 38(1): 18–34 doi: 10.1111/jbl.12155

© Council of Supply Chain Management Professionals

An intuitive approach to predict the relationship between mul-

timarket contact and power use in buyer–supplier relationships

would be to draw analogies to previous findings on multimarket

contact between competitors. From this analogy, one would

expect that both buyers and suppliers reduce their power use uni-

formly when they share relationships on more markets. However,

such an approach would neglect the structural differences

between buyers and suppliers that cannot be captured with extant

(horizontal) multimarket theory. Notably, buyers and suppliers

usually have access to different resources and therefore also seek

different, complementary resources from their supply chain part-

ners (Priem and Swink 2012), which in turn may lead to differ-

ent considerations between the partners with regard to power

use.

A perspective that acknowledges these differences is resource-

advantage theory (Hunt and Morgan 1995, 1996). Resource-

advantage theory considers both product and factor markets

(Hunt and Davis 2012) and therefore can be the basis for a dif-

ferentiated theorizing depending on whether the firm is in the

position of a buyer or supplier in the respective relationship. By

grounding the hypotheses in resource-advantage theory, this

research is novel in providing a theoretical explanation for differ-

ences in power use between buyers and suppliers. Such differ-

ences have been reported empirically but not yet been integrated

in theory development (e.g., Heide and Miner 1992; Nyaga et al.

2013).

The developed hypotheses were tested using a vignette

methodology, which is particularly suitable for investigating sub-

tle decision-making processes, such as buyer–supplier interac-

tions, and their influencing factors (e.g., Adams et al. 2011;

Hora and Klassen 2013). The vignette approach helps isolate the

effect of the investigated antecedent—in this case, the level of

multimarket contact—and better control hypotheses testing

(Rungtusanatham et al. 2011; Siemsen 2011; Thomas et al.

2013).

In summary, this study aims to make three contributions to the

study of power and the advancement of resource-advantage the-

ory in the supply chain management literature. First, it makes

inroads into understanding how multimarket contact can influ-

ence the relationship between buyers and suppliers, particularly

with regard to the use of power. Second, this study advances

resource-advantage theory, in that it can be used as a theoretical

foundation to explain structural differences between buyer behav-

ior and supplier behavior. Third, the study extends the scope of

resource-advantage theory from explaining and predicting differ-

ences in organizational performance (Hunt and Davis 2008; Goli-

cic et al. 2012) to explaining and predicting differences in

organizational behavior.

THEORY AND HYPOTHESES

Resource-advantage theory stipulates that firms create and

acquire comparative resource advantages in their efforts to gain

competitive advantage and, ultimately, to achieve superior finan-

cial performance (Hunt and Morgan 1995; Hunt and Davis

2008). Resources here refer to “the tangible and intangible enti-

ties available to the organization that enable it to produce effi-

ciently and/or effectively a market offering that has value for

some market segment(s)”(Hunt and Davis 2008, 13). Tangible

resources are concrete, specific, and measurable (Cropanzano and

Mitchell 2005); intangible resources are less specific, are difficult

to codify, and typically involve interpersonal exchanges (Pulles

et al. 2014). A key tenet of resource-advantage theory is that

firms demand their supply chain partners to allocate superior

resources (i.e., better or more resources) to them rather than to

their competitors (Pulles et al. 2014). If a supply chain member

receives similar or even inferior resources from the supply chain

relationship, these resources may still have value for the firm, in

that they allow continued operations. However, only superior

resource allocation is differentiating and thus can lead to compet-

itive advantage (Hunt and Davis 2012).

Research in the supply chain literature has so far primarily

used resource-advantage theory to explain organizational perfor-

mance differences. For example, Hunt and Davis (2008) argue

that firms can achieve comparative advantage through a superior

purchasing strategy, and Golicic et al. (2012) suggest that infor-

mational advantage can increase brand image and brand aware-

ness. Although resource-advantage theory embraces both the

resource-based view (Barney 1991) and the demand-side

perspective (Priem 2007) by considering both product- and fac-

tor-market competition (Hunt and Davis 2012), the core

resource-advantage literature has not yet clearly attributed which

specific resources buyers and suppliers tend to seek in their

respective supply chain relationships. However, these can be

inferred from the broader supply chain management literature:

Because the basic form of a buyer–supplier relationship is the

exchange of physical products and services for financial revenues

(Carter et al. 2015b), a common tangible resource that suppliers

seek from buyers is financial revenues. Because quality, time to

delivery, and cost are key performance measures in a buyer–

supplier relationship (Kannan and Tan 2002; Mahapatra et al.

2012; Tanskanen and Aminoff 2015), tangible resources that

buyers usually seek from suppliers include parts and services

with a certain quality and delivery time. With regard to intangible

resources, buyers typically have better access to downstream,

product-market information, whereas suppliers have better access

to upstream, factor-market information (Priem et al. 2012). Thus,

intangible resources that buyers seek from suppliers can include

factor-market information, part and process innovation, and con-

tacts with lower-tier suppliers, whereas intangible resources that

suppliers seek from a buyer can include product-market informa-

tion, product innovation, and relationships with end customers

(Pulles et al. 2014).

Resource advantage and the use of power

One way for a firm to obtain superior resources from a supply

chain partner is to deliberately use mediated power (Pulles et al.

2014). That is, a supply chain member can influence its partner

by granting incentives (reward power), threatening punishment

(coercion power), or executing its judiciary rights (legal legiti-

mate power) (Nyaga et al. 2013). Although reward, coercion,

and legal legitimate power all “rely on extrinsic forms of pres-

sure to gain compliance from the power target”(Handley and

Benton 2012a, 58), recent studies have found that their use has

different effects (Nyaga et al. 2013). The use of reward power is

positively related to outcomes such as commitment (Zhao et al.

Multimarket Contact and the Use of Power 19