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Distinguishing costs of cooperation and control in alliances

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Firms simultaneously face the need to cooperate with and control an alliance partner. To complement the transaction cost perspective’s emphasis on the need to control and limit opportunistic behavior, the authors propose the concept of interaction costs that focuses attention on the imperative to cooperate with a partner and the costs incurred to do so. Interaction costs are a function of joint task complexity and interpartner diversity, moderated by perceptions of equity. Hypotheses derived from the framework are tested in a sample of 237 contractual alliances between architects and general contractors in the Hong Kong construction industry. They find that both interaction costs and transaction costs affect the level of time and effort a manager expends on an alliance, supporting their fundamental proposition that the costs of cooperation and control are conceptually and empirically distinct. The authors argue that interaction costs should be incorporated into studies that compare the choice of alternative partners and alliance structures, as well as among the broader categories of market, hierarchy and hybrid governance structures.

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