Navigating the complex landscape of asymmetrical investments and relational dilemmas in buyer-supplier relationships: A dyadic perspective

The risk of relationship-specific investment (RSI) for investing parties in buyer-supplier relationships is well known, but the impact of RSI asymmetry on them is not well understood. To address this gap, this study examines its impact on relational conflict in buyer-supplier relationships. We also examine whether informal governance mechanisms, such as relative justice and leadership in joint initiatives, mitigate these negative effects. We use matched pair data from 121 buyer-supplier dyads in the Indian automotive industry as well as archival data from various secondary data sources. Our findings suggest a very different picture for the buyer and supplier sides. When the level of the supplier's RSI begins to exceed that of the buyer, the buyer initially tries to exploit its dependency advantage. However, when buyer RSI is higher than supplier RSI, we do not observe an inverted U-shaped effect on supplier conflict. The contingent effects were also significantly different depending on the side of the relationship considered. By taking a dyadic perspective, our paper provides much more nuanced and complex insights into buyer-supplier relationships, particularly RSI.