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Cooperative relationships in competitive markets
Cooperative Relationships in Competitive Markets
SVEN A. ~AU~LAND* KJELLGR0NHAUC Norwegian
School of Economics
and Business Administration
This paper focuses on cooperative and relationships in competitive ABSTRACT: markets. According to economic theory, stable relationships between buyer and seller should only emerge due to some kind of market deficiencies. However, our results suggest that buyer and seller cooperate and develop relationships in a com~titive market. In the international salmon industry, importers tend to concentrate their import on one or a few exporters only. However, the importers will occasionally buy salmon from other exporters. This observation indicates that both cooperation and competition will be present in a competitive market. For buyers and sellers there may be efficiency gains by both cooperating and being exposed to competition.
INTRODUCTION A basic assumption in neoclassical economic theory is that in competitive markets there is no cooperation or relationship between buyer and seller. Transactions in such markets are carried out by “faceless” actors. There are no obligations between buyer and seller prior to the transaction, and when the goods are delivered and the payment received, the transaction is fulfilled. All necessary information is contained in the price, and the price itself determines whether a transaction between buyer and seller will be carried out or not. According to industrial organization theory (cf. Tirole, 1989), cooperation will only emerge in situations with some kind of market imperfections. The existence of cooperative relations~ps is especially related to switching costs, asset specific-
*Direct all correspondence to: Sven A, Haugland, Norwegian School of Economics and Business Administration, Department of Organization Sciences, Breiviken 2, N-5035 Bergen-Sandviken, Norway. Journal of Sucio-Economic, Volume 25, No. 3, pp. 359-371 Copyright 0 JAI Press, Inc. All rights of reproduction in any form reserved. ISSN: 1053-5357
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ity and incomplete contracts (cf. Williamson, 1985; Tirole, 1989). Industrial organization theory assumes that market imperfections favour cooperation because of reduced uncertainty, reduced search costs etc. When imperfections are absent-as in purely competitive markets-no cooperation between sellers and buyers is expected. In contrast to these perspectives, other researchers have studied cooperation and relationships from a more interactive approach (cf. Macneil, 1980; Axelrod, 1984). Cooperation arises through ongoing interaction between buyer and seller without the necessity of market imperfections. By repeated transactions, cooperation evolves incrementally, without any specific antecedent. Many empirical studies demonstrate extant use of cooperation (cf. H%ansson, 1982, 1987; Heide & John, 1988; Dwyer, Schurr, & Oh, 1987). However, most of these studies have been related
to differentiated
products,
and thus assume
that cooperative
relationships
arise due to either specific investments or reduced search costs. With regard to empirical observations, the possibility that buyer and seller in a competitive market will adopt a cooperative strategy is largely unexplored. The purpose of this study is to explore whether buyers and sellers in competitive markets follow a cooperative strategy, and build stable long-term relationships, or whether they behave as assumed by economists who predict that such relationships will not occur. Further, we will investigate whether cooperation can be the major strategy in a competitive market followed by the majority of actors. Our research questions will be empirically explored by studying international transactions in the farmed salmon industry. THEORY AND PROPOSITIONS In standard economic theory, transactions between buyer and seller are straightforward. At a given market price, buyer and seller transact. The terms of trade such as volume to be delivered, time of delivery and how payment shall take place are well defined and agreed upon before buyer and seller enter into the exchange. Further, it is possible to define when the transaction starts and when it is fulfilled. A contract is specified, either explicitly or implicitly for each transaction, as assumed in classical contracting. Such transactions are labelled “discrete,” and can be described as: “Sharp in by clear agreement: sharp out by clear pe$ormace” (Macneil, 1974: 738). Four basic assumptions underlay transactions in competitive markets (Quirk, 1987): 1.
The products to be traded are homogeneous;
2.
There are numerous
3.
The actors have full information
4.
There are no entry/exit barriers and thus no entry/exit costs.
buyers and sellers; regarding all relevant contingencies;
and
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Cooperative Relationships in Competitive Markets
Transactions in competitive markets are carried out by “faceless actors.” Buyer and seller do not cooperate, and the relationship between buyer and seller do not exceed each single transaction as there are no gains of cooperating. The basic assumption behind economic theory is that firms behave economically and conduct activities as efficiently as possible (cf. Knight, 1941; Williamson, 1991). In competitive markets independent suppliers offer homogeOver time, price fluctuations should be expected. An neous products. economically behaving firm should at any time conduct the “the best possible transaction,” buying from the supplier offering the lowest price, and avoid a longterm relationship with one supplier. An economically behaving firm will thus only engage in long-term relationships when market imperfections are present. Industrial organization theory (cf. Tirole, 1989) discusses three specific conditions of market imperfections which can initiate and justify relationships between buyer and seller expanding each single transaction. These are: 1.
Switching
costs;
2.
Asset specificity;
3.
Incomplete
and
contracts.
Switching costs refer to costs associated with changing an exchange partner, while asset specificity refers to idiosyncratic investments made by buyer and/or seller in order to conduct exchange (Williamson, 1985). In situations characterized by switching costs or asset specificity, the actors can experience efficiency gains by preserving a stable relationship. Incomplete contracts refer to incomplete information about future contingencies. Because of incomplete contracts, the actors need to respond to changing conditions in the contract period. Preserving the relationship for future trade can thus be one way of economizing on the costs associated with making necessary adjustments. Under conditions of switching costs, asset specificity or incomplete contracts, buyer and seller experience interdependency which creates an incentive to continue and preserve the relationship. However, economic theory has paid little attention to questions such as: (a) are long-term relationships present in competitive markets; and (b) is it possible that the majority of actors follow a cooperative strategy in a competitive market? In order to shed light on these questions, we will draw upon cooperation theory (cf. Axelrod 1984), which we will present in the next section. Cooperation
Theory
As discussed above, industrial organization theory predicts cooperation to emerge only under market imperfections. Further, it is assumed that there is no economic reason to cooperate in competitive markets. A non-cooperating strategy should be most efficient in competitive markets. However, we will challenge this view, and discuss whether a firm will follow a cooperative strategy in a competi-
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tive market. We also assume that the firm behaves rationally and will follow the strategy which achieves its goal-attainment the best. By using an interactive approach, we will argue that cooperation can evolve without market imperfections. Axelrod, in his penetrating work on cooperation theory, argues that cooperation can emerge in a system of self interest seeking individuals without any kind of central authority (Axelrod, 1984: 3). Without any fixed antecedents such as switching costs, asset specificity or incomplete contracts, cooperation can evolve in an interactive fashion. Economic actors can, as they are interacting in a market, develop and convert to a cooperative strategy. Despite the fact that there is no market imperfection, and no economically sound reason to cooperate, cooperation can evolve, and even become the dominant strategy which almost all actors in a market will pursue. Axelrod starts out by describing two prerequisites for cooperation to thrive: First, reciprocity is the base for cooperation, and second, the shadow of the future needs to be important enough to make reciprocity stable (1984: 173). Reciprocity means that one actor responds to another actor’s actions by the same kind of actions. If, for example a seller does not deliver the goods promptly, the buyer will respond by not paying promptly. The shadow of the future relates to the likelihood that the actors will meet again in the future. In a situation where both buyer and seller know that they probably will face each other in the future, cooperation can emerge and thrive, if the seller starts to act in a cooperating way and the buyer reciprocates this action. This relates to the impact of the context in which transactions take place-an issue largely overlooked by economists (cf. Granovetter, 1985). Following a competitive strategy, a buyer will try to maximize his/her profits at the expense of the supplier. Not paying the bill on time may be one action a buyer can undertake in order to maximize profits. However, this will encourage the supplier to take a retaliatory action, for example deliver lower quality (Macaulay, 1963). The buyer’s action can in the second round of transactions turn out to be very costly. Axelrod’s basic argument is as follows: if there is a reasonable chance that buyer and supplier will transact in the future; (“the shadow of the future” is important), a cooperative strategy will be profitable for both supplier and buyer (Axelrod, 1984: 113). If future interaction is likely, both buyer and seller are able to reward and punish each other. If buyer cooperated in one transaction, seller can reward this action by cooperating in the next transaction. However, if buyer defects in one transaction, seller can punish this action by defecting on the next transaction, Axelrod further argues that if “the shadow of the future” matters, cooperation will always give the actors larger gains than non-cooperative strategies. Axelrod states that “whatever is successful is likely to appear more ofen in the future” (Axelrod, 1984: 169). Axehod describes the evolution of cooperation as a “TIT FOR TAT” strategy. If an actor experiences that cooperation is successful, she/he will increase the use of this particular strategy. In a rather interactive and
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incremental way cooperation evolves as actors experience cooperation to be successful. According to Axelrod, very little has to be assumed about individual actors and the social setting for cooperation to thrive: “The individuals do not have to be rational: the evolutionary process allows the successful strategies to thrive, even if the players do not know why or how. Nor do the players have to exchange messages or commitments: they do not need words, because their deeds speak for them. Likewise there is no need to assume trust between the players: the use of reciprocity can be enough to make defection unproductive. Altruism is not needed: successful strategies can elicit cooperation even from an egoist. Finally, no central authority is needed: cooperation based on reciprocity can be selfpolicing” (Axelrod, 1984; 173-174). The evolution of cooperation is not limited to cooperation between two actors. Cooperation can evolve and become the dominating strategy for an entire system. If a buyer and a seller experience cooperation to be successful, other actors can imitate this strategy, and over time cooperation can become the single most prominent strategy. Once cooperation is established as the dominating startegy, it is strong enough to stop other strategies from invading the system. This means that cooperation is able to “protect” itself, and thus exclude a competitive strategy fom the market. Relating the concept of reciprocity strategies to competitive markets, we will argue that buyer and seller in situations without market imperfections or central authority can develop a cooperative strategy, and that this strategy may be the dominant strategy in the market followed by the majority of actors. In contrast to industrial organization, where relationships are treated as a kind of “second-best solution,” and a spot market, if possible, always will be a better solution, cooperation theory emphasizes mutual benefits from cooperation, and predicts cooperation to be a superior strategy. Propositions
Based on cooperation theory, we will advance two propositions related to cooperative relationships in a competitive market. The first proposition addresses the issue whether cooperative relationships can arise without market imperfections. The second proposition proposes that a cooperative strategy can become the dominant strategy in a competitive market. The term cooperative relationship denotes that cooperation and the relationship between buyer and seller must last for some period of time. In this paper, we will define a cooperative relationship to exist if transactions between the same buyer and seller are recurring in a given time period. The discrete transaction in economic theory represents the opposite alternative. In such transactions there is no connection or relationship between buyer and seller prior to the exchange, and when the transaction is fulfilled, the relationship can be viewed as terminated.
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Such discrete transactions are between “faceless” actors, and there is no history of previous interaction. According to economic theory, the probability that one buyer over a period of time only will trade with one seller is very low. A cooperative relationship can thus be said to exist if transactions are recurring, between the same buyer and seller, to a larger extent than expected for the typical spot transaction. Proposition 1 can be framed as follows: Proposition 1. In a competitive market, buyers and sellers will prefer and adopt to a cooperative strategy and form stable relationships, rather than follow a strictly competitive strategy. For a cooperative strategy to be the dominant strategy in the market, it needs to be followed by the majority of actors. A competitive strategy assumes that a buyer will evaluate possible suppliers for each individual transaction, and select the supplier delivering at lowest price. A buyer, following such a strategy, will transact with many suppliers in a given time period. If the majority of actors in the market follow a competitive strategy, it will not be possible to detect any stable pattern of relationships over a period of time. On the other hand, if cooperation is the dominant strategy, we will be able to find a pattern of stable relationships between sepcific suppliers and buyers over a period of time. Proposition 2 can be framed as follows: Proposition 2. In a competitive market, cooperation will be the strategy followed by the majority of actors.
and stable relationships
Based on Axelrod’s cooperation theory, we have argued that cooperation will evolve in a competitive market. Such a proposition contradicts standard economic theory. By empirical observations, our aim is to shed light on the possibility that self interest seeking actors in a competitive market will develop a cooperative strategy, and the possibility that cooperation will be the strategy followed by the majority of actors. Given the character of this study, our propositions will be analyzed in an exploratory way. In the next section we will describe the setting for empirical investigation of our research propositions. RESEARCH METHODOLOGY In this section we report the research methodology used in the present research. In order to investigate empirically our propositions [i.e., whether ative relationships can exist in competitive markets (Proposition l), and the cooperative strategy is followed by the majority of actors (Proposition following requirements must be met by the empirical setting: l
Numerous
sellers and buyers should be present;
l
No one should have a dominant
share of the market;
piece of cooperwhether 2)], the
Cooperative Relationships
365
in Competitive Markets
l
The product included must be homogenous;
l
Information should be available at no (or modest) costs; and
l
Barriers making entry and/or exit costly should be absent.
The empirical study should also cover a time period allowing for observation of multiple transations among the same sellers and buyers. This is important as to be termed a relationship it must last at least for some period of time (Thompsen & Walker, 1982). Relations among actors have both content and fomz (Knoke & Kublinski, 1982). Relational form refers to properties of the connection between the actors (e.g., degree of formalization and specific rules). Content refers to the substantive type of relation represented in the connection between the actors. Here the focus is on transactions, which is the core content in any economic business relationship. More specifically, we claim that relationships exist in competitive markets, if reoccuring purchases take place between the same actors, in spite of the fact that each transaction is discrete, and that buyers in competitive markets, pursuing their self interests in order to be effective, always will try to make “the best possible buy.” Empirical
Setting
The empirical setting was international transactions of farmed salmon taking place between Norwegian exporters and importers in the US and Japan.’ The structure with many independent producers (see footnote 1) indicates that the product cannot differ very much from one producer to another, and thus it can be considered approximately homogenous. This assumption is also supported by the observation that in spite of the fact that some producers have tried to “tie up” with selected buyers and adjust size, content etc. to their needs, they have not been able to capture premium prices (GrQnhaug, 1992). There are multiple exporters and importers. When the research was conducted a specific license was needed to export.2 More than 100 firms were holding such a license. Even though not everyone holding such a license actually exported, the assumption of multiple sellers is satisfied. Every export transaction was registered by the Export Council for Fresh Fish, as a specific form containing information about buyer and seller, quantity and price is needed. Information from the Export Council shows that multiple importers operated both in the US and Japan. The above mentioned form also indicates that each transaction can be identified. Each transaction can be separated from the others, and it is possible to define when the transaction starts, and when it is completed. Usually, an importer will receive deliveries from an exporter once or twice a week, and each delivery is treated as one transaction. The parties should thus be able to specify relevant future contingencies pertaining to each transaction beforehand. Further, there is a standard method for packing and transportation.
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Exporters and importers of farmed salmon are usually trading all kinds of fishery products, and barriers and costs associated with entry to and exit from the farmed salmon industry are considered to be very low. Moreover, access to information about prices, supplies and quantities is easily available (e.g., by phone or fax from the Export Council for Fresh Fish, or from local representatives with online connection to the Export Council). The Export Council for Fresh Fish provided us with data covering all transactions between Norwegian exporters and importers in the US and Japan during the month of December 1987. For each transaction the exporter and importer’s name, quantity and price (unit and total) was identified. The total number of transactions registered during the actual period was 549, the number of Norwegian exporters 19, and the number of importers 69. FINDINGS
Below are reported the findings from our investigation. The 69 buyers who were active in the market made a total of 549 transactions [i.e., the average number of transactions per buyer is somewhat below eight (7.957)]. For the 19 active exporters, the average number of transactions is 28.9 in the actual time period. As a competitive market is decentralized (i.e., the buyer has the freedom to choose, we will examine the question of relationship from the buyer’s perspective). The number of transactions made by the importers was skewly distributed, ranking from 1 to 91 transactions. Thirteen of sixty-nine importers had made 10 or more transactions. The total number of transactions made by this group was 331. In other words 18.8 per cent of the buyers made 58.8 percent of the transactions. In the following we will focus on the buyers who had made 10 or more transactions in the actual period. The reasons for this choice are that a large number of buyers only had made one or a few purchases, and that-as emphasized abovemultiple purchases are needed to assess whether reoccurring transactions between the same actors take place. In principle, the examination of one buyer would be sufficient to examine whether a relationship might be present, if sufficient number of purchases, and if the buyer’s transactions were (mostly) done with one exporter. By expanding the number of buyers we can: 1.
Test whether long-term relationships
2.
Use the relative frequency common or not;
of potent.i,al occurance
may exist or become stronger;
3.
Examine whether individual
variations
4.
Examine Proposition
to indicate
in transactional
whether this is
behavior occur; and
2.
Table 1 reports the number of transactions made by each of the 13 buyers with 10 or more transactions in the period by the most important supplier (1); the second
Cooperative
Relationships in Competitive
Table 1.
367
Markets
Number of Transactions with Sellers by Buyers Seller
Buyer No.
Rank
11
2
3
29
14
4
91
10
5
57
2
2
23
19
3
3
30
-
4
4
11
9 6
5
5
14
6
6
15
7
7
8
8
8
14
9
9
13
10
10
6
11
11
10
12
11
10
13
11
10
Total
24
1 44
208
Total
30 6
26 20 15
1
5 -
G
14 -
14
-
13
-
12
-
10 10
74
31
10 9
322
most important supplier (2); the third most important supplier (3); and by other suppliers (4). Importance is here measured as number of transactions. The buyers are ranked according to number of transactions performed in the time period covered. Inspection of Table 1 reveals some very interesting findings. First, 208 of the 322 transactions (i.e., 64.6 percent were made with one seller. Of the 19 exporters, 10 transacted with one or more of the 13 buyers listed in Table 1. If no relationships existed, the transactions should be expected to be distributed across these suppliers according to their relative number of transactions, which was found not to be the case. In assuming that each seller has the same likelihood to be selected number of transactions with one seller is by the buyer, the expected E(x> = 322 x l/10 = 33.2. The exporters varied, however, in number of transactions. The highest number of transactions among the exporters was 55. In correcting for uneven distribution in number of transactions among the exporters, the expected number of transactions with one supplier by chance becomes E(X) = 322 x (55/322) = 55. The difference between observed (208) and expected number of transactions (55) is statistical significant (p < .OOl), indicating that transactions do not randomly take place between exporters and importers. Rather, the transactions seem concentrated to specific exporter-importer dyads. These observations support Proposition 1. We will also examine the transactional behavior of each of the importers reported in Table 1. As noted above, the by chance probability to select the most “popular” exporter is p = 55/322 = .17. In using the binomial test, which is appropiate here as transactions in a competitive market can be considered as “independent trials,” it. was found that the concentration on the most important exporter was significantly higher than expected by chance for all buyers (p < .001).3
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This observation supports Proposition 2, as the cooperative strategy is seemingly pursued of all buyers examined. When inspecting Table 1 once more, it is observed that the “transactional” style varies across the buyers. Two buyers (# 3 and 6) have made transactions with four (or more) sellers, two buyers have transacted with three sellers, two with two, and seven of the buyers have completed transactions with one seller only. These observations indicate that even if relationships exist, the actors need not to make all the transactions with one exchange partner only. Often, however, this will be the case. The fact that a rather large fraction of the buyers occasionally use two or more sellers, also indicate that the inherent switching costs (or barriers) are rather modest. As noted in the methodology section both American and Japanese importers are included in the sample. Buyers # l-8 and 10 are Americans, and # 9, and 1 l- 13 are Japanese. It is often stated that the Japanese way of business differs from the American, with more emphasis on long-lasting relationships (Gerlach, 1987). Inspection of Table 1 shows that all four Japanese importers direct their purchases towards Ooze supplier only. The by chance probability of getting such a result is P(B = 4) = .07, p = 7/l 3, y2= 4, indicating that Japanese importers may be more prone to deal with one exporter only. Another way to examine this is to look at the total number of Japanese transactions. From Table 1 it is seen that the total number of Japanese transaction is 43. Asuming that these transactions come from the same “sample” of the transactions as the others, the expected number of transactions with one supplier is E(X) = 43 x (208/322) = 27.78. The difference (43 - 27.78 = 15.22) is statistically significant (x2 = 8.34,~ < .OOl, d.f= l), indicating, as noted above, that the Japanese may be more relational prone than their American counterparts. Price for commodities may change rapidly influenced by supply and demand. An interesting question is whether the prices paid to the most important supplier differ from prices charged by other suppliers, and whether importers dealing with one exporter pay more. Table 2 shows the mean prices4 paid to the most important and next most important seller by buyer. (In parentheses are shown the number of transactions with the supplier.) Inspection of Table 2 reveals no systematic pattern in the prices paid. For example, for importers using two or more suppliers, the highest prices are found both for the most important (e.g., buyer # 2) and the second most important (e.g., buyer # 5). Both the highest (buyer # 6) and the lowest price paid (buyer # 13) are found among buyers using uHe supplier only. Table 2 indicates that prices in an apparently competitive marked varies over time, but since the market “works” buyers dealing with one supplier are not exploited. DISCUSSION
The findings show that long-lasting relationships (i.e., recurring transactions with the same seller) can and do exist in an apparently competitive market. The findings thus indicate that transactions between sellers and buyers are organized in an inter-
Cooperative
~elat;onsb;ps in Competitive
369
Markets
Table 2.
Prices (NOW$ Paid to Most Important and Second Most Important Seller by Buyer Seller 2
1
Buyer 54.95
(441
54.18
129)
56.68
(23)
52.46
(19)
53.01
(30)
4
54.21
(11)
57.16
(9)
5
54.63
(14)
57.20
(6)
6
58.83
(15) 54.18
151
56.69
(6) -
55.11
(8)
8
56.15
9
50.49
174) (13)
10
57.72
11
55.89
(6) (10)
12
51.82
(10)
13
50.49
(10)
-
-
mediary mode (i.e., governance structure of transactions which can be placed somewhere on the continuum between the market and the hierarchial mode of governance). Our findings also indicate that even when concentrating all transactions with one seller only, the buyer is seemingly not exploited. These observations raise the following related questions: 1.
Why do some actors prefer the cooperative mode, while others rely more on the market mode of organizing transactions? and
2.
Why is the market seemingly cooperative mode?
working, even when organizing
transactions
in a
There might be several reasons for preferring the cooperative mode of organizing transactions. Human actors have limited cognitive capacity (i.e., limited capacity to seek, store, handle, and make sense of data) and thus their ability to act rationally (in the traditional sense) becomes limited as well (cf. Simon, 1957). To seek, store and handle data are costly and competences are needed. Moreover, data on market prices must be interpreted, and future consequences predicted, as consequences of decisions unfold in the future (cf. Emhom & Hogart, 1982). Such limitations indicate that when market prices (and other conditions) vary, it is almost impossible to know with certainty what the future will be. Thus a part of the explanation why some buyers “stick to” one supplier may be lack of knowledge. Moreover, search for, evaluation of, and learning to know suppliers takes time and involve costs, and can partly be conceived as “asset specific,” because when invested they cannot be used for other purposes. Thus, even in markets probably as close to competitive markets as possible modest exit barriers may be created. Moreover, by taking a marketer’s perspective and considering what is termed the “augmented” product [i.e., the buyer may consider and appreciate other criteria
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than price, such as the ability to deliver in time, credit giving and so on (cf. Kotler, 1988)], the findings indicate that even homogeneous products may become “heterogeneous,” and create modest exit barriers as well. From Table 1 it is evident that buyers vary in transactional behaviors. There might be several reasons for doing so. Besides the obvious case where the perferred exporter is unable to supply, buyers may vary in search capacity. Their past experiences may vary as well. For example, a learned decision rule that “it pays to search,” will encourage search. Our findings also indicate that the market “works.” As it is difficult ex ante to assess whether the sellers will keep their promises, an important question is why are the buyers seemingly not exploited? The transactions take place in a social context, indicating that some may behave oportunistically once, but will probably not survive in the long run by doing so. Hill (1990) for example, makes a strong argument that non-opportunistic behaviors pay off, arguing that theorists have neglected to consider the implications of the “wider context” for taming opportunism, and that the invisible hand in the social context guide market transactions, and claims: “The compatible quasi rent is only maximized when actors who are prepared to cooperate and trust each other. Thus, over time the invisible hand of the market will favour cooperative actors” (1950: 511). The present market is also “visible” in the sense that it is rather easy to compare prices (and other terms of trade). The actors involved do not operate in social isolation. They form expectations about others. Mutual social expectations discipline the actors. An interesting implication is that when the actors are embedded in recurring transactions, the risk of being exploited by opportunistic actors probably will be reduced substantially. Our findings also demonstrate variations in using the cooperative mode of transactions across cultures. Why so? Cultures include learned values, attitudes and behaviors. The findings indicate that actors bring prior learned values and behaviors into transactions. Thus prior learning may influence the transactional scene and mode. The findings have other implications as well. First, relationships can be created and exist in nearly competitive markets. This indicates that some “barriers” are created. Even though the barriers probably are modest, and too low to charge premium prices, they may represent competitive advantages. For the seller who has created such (weak) relationships, a relationship implies a weak preference, indicating that he(she) will always be selected as long as the buyer remains satisfied. For the buyer, such working relationships imply reduced search and evaluation costs, and increased confidence, allowing the buyer to focus on other activites in order to enhance competitiveness. NOTES 1.
Norwegian salmon is farmed along the coast by independent farmers, mainly selling their production to national buyers and exporters. The number of farmers was in 1987 approximately 700 to 800.
Cooperative 2.
3. 4.
Relationships
in Competitive
Markets
371
This was changed by end of 1992. In doing the calculations, we used Green & Tull (1975), Table 2, reporting the cumulative binomial distribution, for n = 1, .., 20,50, 100, andp = .Ol, .. .. 49.50. The data supplied by The Export Council for Fresh Fish showed only mean prices for the period, calculated as total sales NOWtotal sales kg.
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SVEN A. ~AU~LAND* KJELLGR0NHAUC Norwegian
School of Economics
and Business Administration
This paper focuses on cooperative and relationships in competitive ABSTRACT: markets. According to economic theory, stable relationships between buyer and seller should only emerge due to some kind of market deficiencies. However, our results suggest that buyer and seller cooperate and develop relationships in a com~titive market. In the international salmon industry, importers tend to concentrate their import on one or a few exporters only. However, the importers will occasionally buy salmon from other exporters. This observation indicates that both cooperation and competition will be present in a competitive market. For buyers and sellers there may be efficiency gains by both cooperating and being exposed to competition.
INTRODUCTION A basic assumption in neoclassical economic theory is that in competitive markets there is no cooperation or relationship between buyer and seller. Transactions in such markets are carried out by “faceless” actors. There are no obligations between buyer and seller prior to the transaction, and when the goods are delivered and the payment received, the transaction is fulfilled. All necessary information is contained in the price, and the price itself determines whether a transaction between buyer and seller will be carried out or not. According to industrial organization theory (cf. Tirole, 1989), cooperation will only emerge in situations with some kind of market imperfections. The existence of cooperative relations~ps is especially related to switching costs, asset specific-
*Direct all correspondence to: Sven A, Haugland, Norwegian School of Economics and Business Administration, Department of Organization Sciences, Breiviken 2, N-5035 Bergen-Sandviken, Norway. Journal of Sucio-Economic, Volume 25, No. 3, pp. 359-371 Copyright 0 JAI Press, Inc. All rights of reproduction in any form reserved. ISSN: 1053-5357
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ity and incomplete contracts (cf. Williamson, 1985; Tirole, 1989). Industrial organization theory assumes that market imperfections favour cooperation because of reduced uncertainty, reduced search costs etc. When imperfections are absent-as in purely competitive markets-no cooperation between sellers and buyers is expected. In contrast to these perspectives, other researchers have studied cooperation and relationships from a more interactive approach (cf. Macneil, 1980; Axelrod, 1984). Cooperation arises through ongoing interaction between buyer and seller without the necessity of market imperfections. By repeated transactions, cooperation evolves incrementally, without any specific antecedent. Many empirical studies demonstrate extant use of cooperation (cf. H%ansson, 1982, 1987; Heide & John, 1988; Dwyer, Schurr, & Oh, 1987). However, most of these studies have been related
to differentiated
products,
and thus assume
that cooperative
relationships
arise due to either specific investments or reduced search costs. With regard to empirical observations, the possibility that buyer and seller in a competitive market will adopt a cooperative strategy is largely unexplored. The purpose of this study is to explore whether buyers and sellers in competitive markets follow a cooperative strategy, and build stable long-term relationships, or whether they behave as assumed by economists who predict that such relationships will not occur. Further, we will investigate whether cooperation can be the major strategy in a competitive market followed by the majority of actors. Our research questions will be empirically explored by studying international transactions in the farmed salmon industry. THEORY AND PROPOSITIONS In standard economic theory, transactions between buyer and seller are straightforward. At a given market price, buyer and seller transact. The terms of trade such as volume to be delivered, time of delivery and how payment shall take place are well defined and agreed upon before buyer and seller enter into the exchange. Further, it is possible to define when the transaction starts and when it is fulfilled. A contract is specified, either explicitly or implicitly for each transaction, as assumed in classical contracting. Such transactions are labelled “discrete,” and can be described as: “Sharp in by clear agreement: sharp out by clear pe$ormace” (Macneil, 1974: 738). Four basic assumptions underlay transactions in competitive markets (Quirk, 1987): 1.
The products to be traded are homogeneous;
2.
There are numerous
3.
The actors have full information
4.
There are no entry/exit barriers and thus no entry/exit costs.
buyers and sellers; regarding all relevant contingencies;
and
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Cooperative Relationships in Competitive Markets
Transactions in competitive markets are carried out by “faceless actors.” Buyer and seller do not cooperate, and the relationship between buyer and seller do not exceed each single transaction as there are no gains of cooperating. The basic assumption behind economic theory is that firms behave economically and conduct activities as efficiently as possible (cf. Knight, 1941; Williamson, 1991). In competitive markets independent suppliers offer homogeOver time, price fluctuations should be expected. An neous products. economically behaving firm should at any time conduct the “the best possible transaction,” buying from the supplier offering the lowest price, and avoid a longterm relationship with one supplier. An economically behaving firm will thus only engage in long-term relationships when market imperfections are present. Industrial organization theory (cf. Tirole, 1989) discusses three specific conditions of market imperfections which can initiate and justify relationships between buyer and seller expanding each single transaction. These are: 1.
Switching
costs;
2.
Asset specificity;
3.
Incomplete
and
contracts.
Switching costs refer to costs associated with changing an exchange partner, while asset specificity refers to idiosyncratic investments made by buyer and/or seller in order to conduct exchange (Williamson, 1985). In situations characterized by switching costs or asset specificity, the actors can experience efficiency gains by preserving a stable relationship. Incomplete contracts refer to incomplete information about future contingencies. Because of incomplete contracts, the actors need to respond to changing conditions in the contract period. Preserving the relationship for future trade can thus be one way of economizing on the costs associated with making necessary adjustments. Under conditions of switching costs, asset specificity or incomplete contracts, buyer and seller experience interdependency which creates an incentive to continue and preserve the relationship. However, economic theory has paid little attention to questions such as: (a) are long-term relationships present in competitive markets; and (b) is it possible that the majority of actors follow a cooperative strategy in a competitive market? In order to shed light on these questions, we will draw upon cooperation theory (cf. Axelrod 1984), which we will present in the next section. Cooperation
Theory
As discussed above, industrial organization theory predicts cooperation to emerge only under market imperfections. Further, it is assumed that there is no economic reason to cooperate in competitive markets. A non-cooperating strategy should be most efficient in competitive markets. However, we will challenge this view, and discuss whether a firm will follow a cooperative strategy in a competi-
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tive market. We also assume that the firm behaves rationally and will follow the strategy which achieves its goal-attainment the best. By using an interactive approach, we will argue that cooperation can evolve without market imperfections. Axelrod, in his penetrating work on cooperation theory, argues that cooperation can emerge in a system of self interest seeking individuals without any kind of central authority (Axelrod, 1984: 3). Without any fixed antecedents such as switching costs, asset specificity or incomplete contracts, cooperation can evolve in an interactive fashion. Economic actors can, as they are interacting in a market, develop and convert to a cooperative strategy. Despite the fact that there is no market imperfection, and no economically sound reason to cooperate, cooperation can evolve, and even become the dominant strategy which almost all actors in a market will pursue. Axelrod starts out by describing two prerequisites for cooperation to thrive: First, reciprocity is the base for cooperation, and second, the shadow of the future needs to be important enough to make reciprocity stable (1984: 173). Reciprocity means that one actor responds to another actor’s actions by the same kind of actions. If, for example a seller does not deliver the goods promptly, the buyer will respond by not paying promptly. The shadow of the future relates to the likelihood that the actors will meet again in the future. In a situation where both buyer and seller know that they probably will face each other in the future, cooperation can emerge and thrive, if the seller starts to act in a cooperating way and the buyer reciprocates this action. This relates to the impact of the context in which transactions take place-an issue largely overlooked by economists (cf. Granovetter, 1985). Following a competitive strategy, a buyer will try to maximize his/her profits at the expense of the supplier. Not paying the bill on time may be one action a buyer can undertake in order to maximize profits. However, this will encourage the supplier to take a retaliatory action, for example deliver lower quality (Macaulay, 1963). The buyer’s action can in the second round of transactions turn out to be very costly. Axelrod’s basic argument is as follows: if there is a reasonable chance that buyer and supplier will transact in the future; (“the shadow of the future” is important), a cooperative strategy will be profitable for both supplier and buyer (Axelrod, 1984: 113). If future interaction is likely, both buyer and seller are able to reward and punish each other. If buyer cooperated in one transaction, seller can reward this action by cooperating in the next transaction. However, if buyer defects in one transaction, seller can punish this action by defecting on the next transaction, Axelrod further argues that if “the shadow of the future” matters, cooperation will always give the actors larger gains than non-cooperative strategies. Axelrod states that “whatever is successful is likely to appear more ofen in the future” (Axelrod, 1984: 169). Axehod describes the evolution of cooperation as a “TIT FOR TAT” strategy. If an actor experiences that cooperation is successful, she/he will increase the use of this particular strategy. In a rather interactive and
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363
incremental way cooperation evolves as actors experience cooperation to be successful. According to Axelrod, very little has to be assumed about individual actors and the social setting for cooperation to thrive: “The individuals do not have to be rational: the evolutionary process allows the successful strategies to thrive, even if the players do not know why or how. Nor do the players have to exchange messages or commitments: they do not need words, because their deeds speak for them. Likewise there is no need to assume trust between the players: the use of reciprocity can be enough to make defection unproductive. Altruism is not needed: successful strategies can elicit cooperation even from an egoist. Finally, no central authority is needed: cooperation based on reciprocity can be selfpolicing” (Axelrod, 1984; 173-174). The evolution of cooperation is not limited to cooperation between two actors. Cooperation can evolve and become the dominating strategy for an entire system. If a buyer and a seller experience cooperation to be successful, other actors can imitate this strategy, and over time cooperation can become the single most prominent strategy. Once cooperation is established as the dominating startegy, it is strong enough to stop other strategies from invading the system. This means that cooperation is able to “protect” itself, and thus exclude a competitive strategy fom the market. Relating the concept of reciprocity strategies to competitive markets, we will argue that buyer and seller in situations without market imperfections or central authority can develop a cooperative strategy, and that this strategy may be the dominant strategy in the market followed by the majority of actors. In contrast to industrial organization, where relationships are treated as a kind of “second-best solution,” and a spot market, if possible, always will be a better solution, cooperation theory emphasizes mutual benefits from cooperation, and predicts cooperation to be a superior strategy. Propositions
Based on cooperation theory, we will advance two propositions related to cooperative relationships in a competitive market. The first proposition addresses the issue whether cooperative relationships can arise without market imperfections. The second proposition proposes that a cooperative strategy can become the dominant strategy in a competitive market. The term cooperative relationship denotes that cooperation and the relationship between buyer and seller must last for some period of time. In this paper, we will define a cooperative relationship to exist if transactions between the same buyer and seller are recurring in a given time period. The discrete transaction in economic theory represents the opposite alternative. In such transactions there is no connection or relationship between buyer and seller prior to the exchange, and when the transaction is fulfilled, the relationship can be viewed as terminated.
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Such discrete transactions are between “faceless” actors, and there is no history of previous interaction. According to economic theory, the probability that one buyer over a period of time only will trade with one seller is very low. A cooperative relationship can thus be said to exist if transactions are recurring, between the same buyer and seller, to a larger extent than expected for the typical spot transaction. Proposition 1 can be framed as follows: Proposition 1. In a competitive market, buyers and sellers will prefer and adopt to a cooperative strategy and form stable relationships, rather than follow a strictly competitive strategy. For a cooperative strategy to be the dominant strategy in the market, it needs to be followed by the majority of actors. A competitive strategy assumes that a buyer will evaluate possible suppliers for each individual transaction, and select the supplier delivering at lowest price. A buyer, following such a strategy, will transact with many suppliers in a given time period. If the majority of actors in the market follow a competitive strategy, it will not be possible to detect any stable pattern of relationships over a period of time. On the other hand, if cooperation is the dominant strategy, we will be able to find a pattern of stable relationships between sepcific suppliers and buyers over a period of time. Proposition 2 can be framed as follows: Proposition 2. In a competitive market, cooperation will be the strategy followed by the majority of actors.
and stable relationships
Based on Axelrod’s cooperation theory, we have argued that cooperation will evolve in a competitive market. Such a proposition contradicts standard economic theory. By empirical observations, our aim is to shed light on the possibility that self interest seeking actors in a competitive market will develop a cooperative strategy, and the possibility that cooperation will be the strategy followed by the majority of actors. Given the character of this study, our propositions will be analyzed in an exploratory way. In the next section we will describe the setting for empirical investigation of our research propositions. RESEARCH METHODOLOGY In this section we report the research methodology used in the present research. In order to investigate empirically our propositions [i.e., whether ative relationships can exist in competitive markets (Proposition l), and the cooperative strategy is followed by the majority of actors (Proposition following requirements must be met by the empirical setting: l
Numerous
sellers and buyers should be present;
l
No one should have a dominant
share of the market;
piece of cooperwhether 2)], the
Cooperative Relationships
365
in Competitive Markets
l
The product included must be homogenous;
l
Information should be available at no (or modest) costs; and
l
Barriers making entry and/or exit costly should be absent.
The empirical study should also cover a time period allowing for observation of multiple transations among the same sellers and buyers. This is important as to be termed a relationship it must last at least for some period of time (Thompsen & Walker, 1982). Relations among actors have both content and fomz (Knoke & Kublinski, 1982). Relational form refers to properties of the connection between the actors (e.g., degree of formalization and specific rules). Content refers to the substantive type of relation represented in the connection between the actors. Here the focus is on transactions, which is the core content in any economic business relationship. More specifically, we claim that relationships exist in competitive markets, if reoccuring purchases take place between the same actors, in spite of the fact that each transaction is discrete, and that buyers in competitive markets, pursuing their self interests in order to be effective, always will try to make “the best possible buy.” Empirical
Setting
The empirical setting was international transactions of farmed salmon taking place between Norwegian exporters and importers in the US and Japan.’ The structure with many independent producers (see footnote 1) indicates that the product cannot differ very much from one producer to another, and thus it can be considered approximately homogenous. This assumption is also supported by the observation that in spite of the fact that some producers have tried to “tie up” with selected buyers and adjust size, content etc. to their needs, they have not been able to capture premium prices (GrQnhaug, 1992). There are multiple exporters and importers. When the research was conducted a specific license was needed to export.2 More than 100 firms were holding such a license. Even though not everyone holding such a license actually exported, the assumption of multiple sellers is satisfied. Every export transaction was registered by the Export Council for Fresh Fish, as a specific form containing information about buyer and seller, quantity and price is needed. Information from the Export Council shows that multiple importers operated both in the US and Japan. The above mentioned form also indicates that each transaction can be identified. Each transaction can be separated from the others, and it is possible to define when the transaction starts, and when it is completed. Usually, an importer will receive deliveries from an exporter once or twice a week, and each delivery is treated as one transaction. The parties should thus be able to specify relevant future contingencies pertaining to each transaction beforehand. Further, there is a standard method for packing and transportation.
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Exporters and importers of farmed salmon are usually trading all kinds of fishery products, and barriers and costs associated with entry to and exit from the farmed salmon industry are considered to be very low. Moreover, access to information about prices, supplies and quantities is easily available (e.g., by phone or fax from the Export Council for Fresh Fish, or from local representatives with online connection to the Export Council). The Export Council for Fresh Fish provided us with data covering all transactions between Norwegian exporters and importers in the US and Japan during the month of December 1987. For each transaction the exporter and importer’s name, quantity and price (unit and total) was identified. The total number of transactions registered during the actual period was 549, the number of Norwegian exporters 19, and the number of importers 69. FINDINGS
Below are reported the findings from our investigation. The 69 buyers who were active in the market made a total of 549 transactions [i.e., the average number of transactions per buyer is somewhat below eight (7.957)]. For the 19 active exporters, the average number of transactions is 28.9 in the actual time period. As a competitive market is decentralized (i.e., the buyer has the freedom to choose, we will examine the question of relationship from the buyer’s perspective). The number of transactions made by the importers was skewly distributed, ranking from 1 to 91 transactions. Thirteen of sixty-nine importers had made 10 or more transactions. The total number of transactions made by this group was 331. In other words 18.8 per cent of the buyers made 58.8 percent of the transactions. In the following we will focus on the buyers who had made 10 or more transactions in the actual period. The reasons for this choice are that a large number of buyers only had made one or a few purchases, and that-as emphasized abovemultiple purchases are needed to assess whether reoccurring transactions between the same actors take place. In principle, the examination of one buyer would be sufficient to examine whether a relationship might be present, if sufficient number of purchases, and if the buyer’s transactions were (mostly) done with one exporter. By expanding the number of buyers we can: 1.
Test whether long-term relationships
2.
Use the relative frequency common or not;
of potent.i,al occurance
may exist or become stronger;
3.
Examine whether individual
variations
4.
Examine Proposition
to indicate
in transactional
whether this is
behavior occur; and
2.
Table 1 reports the number of transactions made by each of the 13 buyers with 10 or more transactions in the period by the most important supplier (1); the second
Cooperative
Relationships in Competitive
Table 1.
367
Markets
Number of Transactions with Sellers by Buyers Seller
Buyer No.
Rank
11
2
3
29
14
4
91
10
5
57
2
2
23
19
3
3
30
-
4
4
11
9 6
5
5
14
6
6
15
7
7
8
8
8
14
9
9
13
10
10
6
11
11
10
12
11
10
13
11
10
Total
24
1 44
208
Total
30 6
26 20 15
1
5 -
G
14 -
14
-
13
-
12
-
10 10
74
31
10 9
322
most important supplier (2); the third most important supplier (3); and by other suppliers (4). Importance is here measured as number of transactions. The buyers are ranked according to number of transactions performed in the time period covered. Inspection of Table 1 reveals some very interesting findings. First, 208 of the 322 transactions (i.e., 64.6 percent were made with one seller. Of the 19 exporters, 10 transacted with one or more of the 13 buyers listed in Table 1. If no relationships existed, the transactions should be expected to be distributed across these suppliers according to their relative number of transactions, which was found not to be the case. In assuming that each seller has the same likelihood to be selected number of transactions with one seller is by the buyer, the expected E(x> = 322 x l/10 = 33.2. The exporters varied, however, in number of transactions. The highest number of transactions among the exporters was 55. In correcting for uneven distribution in number of transactions among the exporters, the expected number of transactions with one supplier by chance becomes E(X) = 322 x (55/322) = 55. The difference between observed (208) and expected number of transactions (55) is statistical significant (p < .OOl), indicating that transactions do not randomly take place between exporters and importers. Rather, the transactions seem concentrated to specific exporter-importer dyads. These observations support Proposition 1. We will also examine the transactional behavior of each of the importers reported in Table 1. As noted above, the by chance probability to select the most “popular” exporter is p = 55/322 = .17. In using the binomial test, which is appropiate here as transactions in a competitive market can be considered as “independent trials,” it. was found that the concentration on the most important exporter was significantly higher than expected by chance for all buyers (p < .001).3
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This observation supports Proposition 2, as the cooperative strategy is seemingly pursued of all buyers examined. When inspecting Table 1 once more, it is observed that the “transactional” style varies across the buyers. Two buyers (# 3 and 6) have made transactions with four (or more) sellers, two buyers have transacted with three sellers, two with two, and seven of the buyers have completed transactions with one seller only. These observations indicate that even if relationships exist, the actors need not to make all the transactions with one exchange partner only. Often, however, this will be the case. The fact that a rather large fraction of the buyers occasionally use two or more sellers, also indicate that the inherent switching costs (or barriers) are rather modest. As noted in the methodology section both American and Japanese importers are included in the sample. Buyers # l-8 and 10 are Americans, and # 9, and 1 l- 13 are Japanese. It is often stated that the Japanese way of business differs from the American, with more emphasis on long-lasting relationships (Gerlach, 1987). Inspection of Table 1 shows that all four Japanese importers direct their purchases towards Ooze supplier only. The by chance probability of getting such a result is P(B = 4) = .07, p = 7/l 3, y2= 4, indicating that Japanese importers may be more prone to deal with one exporter only. Another way to examine this is to look at the total number of Japanese transactions. From Table 1 it is seen that the total number of Japanese transaction is 43. Asuming that these transactions come from the same “sample” of the transactions as the others, the expected number of transactions with one supplier is E(X) = 43 x (208/322) = 27.78. The difference (43 - 27.78 = 15.22) is statistically significant (x2 = 8.34,~ < .OOl, d.f= l), indicating, as noted above, that the Japanese may be more relational prone than their American counterparts. Price for commodities may change rapidly influenced by supply and demand. An interesting question is whether the prices paid to the most important supplier differ from prices charged by other suppliers, and whether importers dealing with one exporter pay more. Table 2 shows the mean prices4 paid to the most important and next most important seller by buyer. (In parentheses are shown the number of transactions with the supplier.) Inspection of Table 2 reveals no systematic pattern in the prices paid. For example, for importers using two or more suppliers, the highest prices are found both for the most important (e.g., buyer # 2) and the second most important (e.g., buyer # 5). Both the highest (buyer # 6) and the lowest price paid (buyer # 13) are found among buyers using uHe supplier only. Table 2 indicates that prices in an apparently competitive marked varies over time, but since the market “works” buyers dealing with one supplier are not exploited. DISCUSSION
The findings show that long-lasting relationships (i.e., recurring transactions with the same seller) can and do exist in an apparently competitive market. The findings thus indicate that transactions between sellers and buyers are organized in an inter-
Cooperative
~elat;onsb;ps in Competitive
369
Markets
Table 2.
Prices (NOW$ Paid to Most Important and Second Most Important Seller by Buyer Seller 2
1
Buyer 54.95
(441
54.18
129)
56.68
(23)
52.46
(19)
53.01
(30)
4
54.21
(11)
57.16
(9)
5
54.63
(14)
57.20
(6)
6
58.83
(15) 54.18
151
56.69
(6) -
55.11
(8)
8
56.15
9
50.49
174) (13)
10
57.72
11
55.89
(6) (10)
12
51.82
(10)
13
50.49
(10)
-
-
mediary mode (i.e., governance structure of transactions which can be placed somewhere on the continuum between the market and the hierarchial mode of governance). Our findings also indicate that even when concentrating all transactions with one seller only, the buyer is seemingly not exploited. These observations raise the following related questions: 1.
Why do some actors prefer the cooperative mode, while others rely more on the market mode of organizing transactions? and
2.
Why is the market seemingly cooperative mode?
working, even when organizing
transactions
in a
There might be several reasons for preferring the cooperative mode of organizing transactions. Human actors have limited cognitive capacity (i.e., limited capacity to seek, store, handle, and make sense of data) and thus their ability to act rationally (in the traditional sense) becomes limited as well (cf. Simon, 1957). To seek, store and handle data are costly and competences are needed. Moreover, data on market prices must be interpreted, and future consequences predicted, as consequences of decisions unfold in the future (cf. Emhom & Hogart, 1982). Such limitations indicate that when market prices (and other conditions) vary, it is almost impossible to know with certainty what the future will be. Thus a part of the explanation why some buyers “stick to” one supplier may be lack of knowledge. Moreover, search for, evaluation of, and learning to know suppliers takes time and involve costs, and can partly be conceived as “asset specific,” because when invested they cannot be used for other purposes. Thus, even in markets probably as close to competitive markets as possible modest exit barriers may be created. Moreover, by taking a marketer’s perspective and considering what is termed the “augmented” product [i.e., the buyer may consider and appreciate other criteria
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than price, such as the ability to deliver in time, credit giving and so on (cf. Kotler, 1988)], the findings indicate that even homogeneous products may become “heterogeneous,” and create modest exit barriers as well. From Table 1 it is evident that buyers vary in transactional behaviors. There might be several reasons for doing so. Besides the obvious case where the perferred exporter is unable to supply, buyers may vary in search capacity. Their past experiences may vary as well. For example, a learned decision rule that “it pays to search,” will encourage search. Our findings also indicate that the market “works.” As it is difficult ex ante to assess whether the sellers will keep their promises, an important question is why are the buyers seemingly not exploited? The transactions take place in a social context, indicating that some may behave oportunistically once, but will probably not survive in the long run by doing so. Hill (1990) for example, makes a strong argument that non-opportunistic behaviors pay off, arguing that theorists have neglected to consider the implications of the “wider context” for taming opportunism, and that the invisible hand in the social context guide market transactions, and claims: “The compatible quasi rent is only maximized when actors who are prepared to cooperate and trust each other. Thus, over time the invisible hand of the market will favour cooperative actors” (1950: 511). The present market is also “visible” in the sense that it is rather easy to compare prices (and other terms of trade). The actors involved do not operate in social isolation. They form expectations about others. Mutual social expectations discipline the actors. An interesting implication is that when the actors are embedded in recurring transactions, the risk of being exploited by opportunistic actors probably will be reduced substantially. Our findings also demonstrate variations in using the cooperative mode of transactions across cultures. Why so? Cultures include learned values, attitudes and behaviors. The findings indicate that actors bring prior learned values and behaviors into transactions. Thus prior learning may influence the transactional scene and mode. The findings have other implications as well. First, relationships can be created and exist in nearly competitive markets. This indicates that some “barriers” are created. Even though the barriers probably are modest, and too low to charge premium prices, they may represent competitive advantages. For the seller who has created such (weak) relationships, a relationship implies a weak preference, indicating that he(she) will always be selected as long as the buyer remains satisfied. For the buyer, such working relationships imply reduced search and evaluation costs, and increased confidence, allowing the buyer to focus on other activites in order to enhance competitiveness. NOTES 1.
Norwegian salmon is farmed along the coast by independent farmers, mainly selling their production to national buyers and exporters. The number of farmers was in 1987 approximately 700 to 800.
Cooperative 2.
3. 4.
Relationships
in Competitive
Markets
371
This was changed by end of 1992. In doing the calculations, we used Green & Tull (1975), Table 2, reporting the cumulative binomial distribution, for n = 1, .., 20,50, 100, andp = .Ol, .. .. 49.50. The data supplied by The Export Council for Fresh Fish showed only mean prices for the period, calculated as total sales NOWtotal sales kg.
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