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.