Flexibility in buyer-seller relationships

Long-term buyer-seller relationships are crucial in business-to-business markets, with their management significantly impacting the outcomes for both parties involved. Research is intensifying to understand these relationships better, focusing on when they are a viable coordination method and how to manage them effectively. Transaction Cost Economics (TCE) has emerged as a valuable theoretical framework, offering insights into when such relationships are economically sensible and which activities can safeguard ex post benefits from an ex ante perspective. The literature on buyer-seller relationship management has primarily concentrated on safeguarding mechanisms to protect against opportunistic behavior. However, the flexibility needed to adapt to changing environmental conditions has often been overlooked. This narrow focus stems from TCE's comparative static approach, which evaluates the efficiency of different coordination forms at a single point in time. It becomes evident that while contractual safeguards can reduce behavioral uncertainty, they may also limit the parties' ability to respond to unforeseen developments in the future. Understanding this balance is essential for managing buyer-seller relationships effectively.