Observer Effects of Punishment in a Distribution Network

Abstract

In a distribution network, a punishment event not only affects the disciplined distributor but also changes the attitudes and behaviors of others in the network (i.e., observers). By moving beyond a dyadic view of punishment, this article considers the effects of punishment on observers and integrates insights from social learning, fairness heuristic, and social network theories. The resulting framework of the observer effects of punishment in a distribution network, empirically tested with a survey in China, reveals two mechanisms through which punishment leads to reduced observer opportunism: (1) a direct deterrence effect and (2) a trust-building process. Moreover, two information-related constructs moderate the observer effects differently. The disciplined distributor's relational embeddedness, which motivates greater information flow to observers, aggravates the problem of information asymmetry against the manufacturer, making punishment less deterrent for observers. In contrast, the manufacturer's monitoring capability, which reduces information asymmetry, strengthens observer effects. The authors discuss both theoretical and managerial implications of using punishment to achieve collaboration from a wide network of channel members.

The Evolution of Marketing Channels: Trends and Research Directions

“…In channels research, TCE explicates interactions among suppliers, distributors, and retailers by citing the influences on the channel structure of the "make-or-buy" decision. However, recent TCE-based research has expanded the scope of related constructs to include not just opportunism (Jap et al 2013;Wang, Gu, and Dong 2013) but also contexts (Kim et al 2011), culture (Steenkamp and Geyskens 2012), and online business environments (Chintagunta, Chu, and Cebollada 2012).…”

“…In this sense, network theory provides an excellent framework within which to understand how changes in one part of the channel ecosystem affect other parts, such as the propagation of interfirm behaviors from one channel relationship to an adjacent one (i.e., contagion; McFarland, Bloodgood, and Payan 2008). Likewise, the punishment of one member in a distribution network can reduce opportunism by intermediaries that observe that punishment, through both a deterrent effect and a trust-building process (Wang, Gu, and Dong 2013).…”

“…Several advantages accrue from a franchise agreement, compared with market sourcing or vertical integration. From an agency perspective, franchising is advantageous in the face of high environmental uncertainty or when monitoring vertically owned agents is difficult (Wang, Gu, and Dong 2013). Because franchisees use their own start-up capital and share substantially in the profits of the franchise, they have strong incentives to operate efficiently, to the benefit of the entire channel (Lal 1990).…”

“…Channel structures such a Japanese keiretsu or Korean chaebol do not fit neatly into dyadic frameworks and thus necessitate alternative theoretical and empirical approaches. The analysis of a network in which a focal firm operates is important in rapidly changing business environments that demand flexible, associative networks of functionally specialized firms, fused by cooperative relationships that provide access to unique knowledge and resources (Wang, Gu, and Dong 2013). Similar to dyads, channel networks have been examined from economic-based (i.e., investments in relationships, resource acquisition) and behavioral-based (i.e., normative expectations) perspectives, to understand the types of resource ties and organizational bonds that connect network actors and lead to optimal performance (Håkansson and Ford 2002).…”

Understanding distributor opportunism in a horizontal network

“…A few recent studies have suggested that we should examine if network relationships would reduce or enhance the friction inherent in the interactions taking place between the two self-interested parties (e.g., El Akremi et al, 2010;Morgan, Kaleka, & Gooner, 2007;Rindfleisch & Moorman, 2001;Wang, Gu, & Dong, 2013;Wathne & Heide, 2000). For example, Wathne and Heide (2004) examined how a firm's relationship governance is contingent on the nature of its vertical network.…”