Socially embedded consumer transactions: for what kinds of purchases do people most often use networks?

Abstract

Why and to what extent do people make significant purchases from people with whom they have prior noncommercial relationships? Using data from the economic sociology module of the 1996 General Social Survey, we document high levels of within-network exchanges. We argue that transacting with social contacts is effective because it embeds commercial exchanges in a web of obligations and holds the seller's network hostage to appropriate role performance in the economic transaction. It follows that within-network exchanges will be more common in risky transactions that are unlikely to be repeated and in which uncertainty is high. The data support this view. Self-reports about major purchases are consistent with the expectation that exchange frequency reduces the extent of within-network exchanges. Responses to questions about preferences for in-group exchanges support the argument that uncertainty about product and performance quality leads people to prefer sellers with whom they have noncommercial ties. Moreover, people prefer to avoid selling to social contacts under the same conditions that lead buyers to seek such transactions; and people who transact with friends and relatives report greater satisfaction with the results than do people who transact with strangers, especially for risk-laden exchanges.