The dynamic interplay of contracts and trust: Untangling between- and within-dyad effects

Abstract

This study untangles the complex contract'trust interplay by differentiating between- from within-dyad effects. When comparing buyer'supplier dyads, contracts and trust should complement each other, reflecting varying levels of exchange complexity and deliberate contracting efforts. But in within-dyad comparisons, contracts and trust substitute for each other over time, due to partner-specific learning and the emergence of routines. To validate these arguments, the authors examine boundary conditions at the exchange level, namely, exchange product customization and prior exchange history. Product customization reduces the complementary between-dyad effects of trust and contracts; exchange history makes the within-dyad substitution effects more salient. The results, based on survey data from 250 buyer'supplier relationships collected over two time periods, provide strong support for the propositions and thereby establish a more refined understanding of the dynamic contract'trust relationship.