Impact of Contract Specificity and Enforcement on Channel Opportunism and Conflict

ABSTRACT Purpose Scholars have conducted extensive research regarding contractual governance in marketing channels. Operationalizing contractual governance intensity as contract specificity, researchers focused on the impact of contract specificity, while little effort has been paid to the impact of contract enforcement. As a distinct construct of contractual governance mechanism, contract enforcement largely determines the integrity of contracts and the effectiveness of their coordination effects. Dividing contractual governance into contract specificity and contract enforcement, this paper examines the direct and interactive effects of contract specificity and contract enforcement on channel opportunism and conflict. It tries to answer: (1) How do contract specificity and distributor contract enforcement affect supplier opportunism and channel conflict respectively? (2) What are the interactive effect of specificity and enforcement when they are considered simultaneously? Methodology/Approach The paper proposed a research model by taking contract specificity, distributor contract enforcement and their interaction as the antecedents, and supplier opportunism and channel conflict between distributor and supplier as the consequences. To test the model, with the help of a large domestic household appliance supplier in China, we collected data from the side of distributors, and analyzed the data from 607 valid responses with structural equation model (SEM). Findings Both contract specificity and distributor contract enforcement would respectively inhibit supplier opportunism, and supplier opportunism in turn would be positively associated with channel conflict. On the other hand, distributor contract enforcement would increase, while contract specificity would have an insignificant impact on, channel conflict. In addition, interaction between distributor contract enforcement and contract specificity would reduce both supplier opportunism and channel conflict. Originality/Value/Contribution This paper tries to make three contributions. First, it investigated the impact of contractual governance in marketing channels in more depth by dividing contractual governance into two dimensions, namely contractual specificity and contract enforcement, enriching the literature of contractual governance in marketing channels. Second, it empirically tested the impacts of contract enforcement on supplier opportunism and channel conflict between distributor and supplier, to which previous studies have paid little attention. Third, it for the first time considered the interactive effects of contract specificity and contract enforcement on channel opportunism and channel conflict. As a result, it provides a new line of explanation for previous inconsistencies in the effect of contract specificity on channel opportunism as well as channel enforcement on channel opportunism. Practical implications Firms are encouraged to draft specific contracts with their channel partners despite the time and effort required by both parties based on the findings of this research and previous studies. However, contracts should be carefully enforced. According to the findings of this study, if imposed highly strict, contract enforcement may intensify channel conflict between partners.