Supplier contract acceptance under buyer and supplier dependence

Research on purchasing contracts assumes that both parties will sign the contract. However, it neglects to examine what motivates buyers and suppliers to enter into a contract in the first place. Our contract acceptance model builds on power-dependence theory and Hirschman’s relational theory in order to categorise and understand how suppliers may respond to contract offers from buying firms. Our analysis is based on a unique dataset comprising 41,036 contracts offered to 164 automotive suppliers over four years. The results show that increasing supplier dependence on the buyer leads to higher contract acceptance rates. Furthermore, the more dependent a buyer is on a supplier, the less likely the supplier is to immediately accept a contract with that buyer. Instead, the supplier is more likely to react in a destructive manner, for example by rejecting the contract or scrutinising it and delaying a response. Our findings shed light on how dependence facilitates or hinders contracts from being accepted and executed.