Breaching relational obligations in a buyer-supplier relationship: Feelings of violation, fairness perceptions and supplier switching

Prior research suggests that the interaction of individual agents for buyer and supplier firms influences firm level business relationships. There is a call for empirical research that investigates the interplay of cognitive judgments and behaviors of these agents in their interactions. We therefore evaluate the role that psychological contracts, or unspoken obligations can play in buyer-supplier relationship dissolution. Most empirical studies in this area have focused solely on transactional obligations. Our research uses social exchange theory to explain why breach of relational obligations matters, although they might have no immediate economic consequence. We use two scenario based experiments, with student participants and supply chain professionals, to understand reactions to relational, transactional, and combined breaches in supply chains. Interviews with seasoned, strategic sourcing agents confirm the experimental findings and provide additional insight. We find that breach of a relational psychological contract has both a direct effect on fairness perceptions, and an indirect effect mediated by an emotional response. In contrast, the effect of a breach on the decision to switch suppliers, is fully mediated by emotional response. The implication is that suppliers may be able to ameliorate relationship dissolution by dampening the buyer's emotional response to the psychological breach. The interviews reveal that in practice, relational breaches can be the cause of relationship termination, though a transactional breach may be used as justification. Thus we demonstrate the importance of understanding and fulfilling unspoken relational obligations.