When Does Behavioral Certainty Overcome Environmental Uncertainty: The Effects of Regulatory Focus, Environmental Uncertainty and Past Relationship Experience with the Supplier on Decisions against Reported Likelihood of Delivery Failure

Abstract

We investigated the independent and joint effects of regulatory focus, nature of past relationship experience with the supplier and environmental uncertainty on decision to (a) give price revision advantage, (b) give deadline extension, and (c) terminate contract and negotiate with another supplier firm against reported likelihood of delivery failure. In an experimental study with 155 Indian managers, we hypothesized and found that prevention oriented buyers, as compared to promotion oriented buyers, had greater tendency to give price revision advantage to the supplier under moderate and high environmental uncertainty but not under low uncertainty. The finding supports regulatory fit theory explanation to the given decision problem but not regulatory focus as a personality trait theory prediction. We found a strong main effect of buyer’s past relationship experience with the supplier firm on their decisions thereby strongly supporting predictions based on organizational learning perspective of the behavioural theory of the firm and past research on trust building through past relationship experience based in negotiation as well as international alliance research. We found that buyers are more likely to give price revision advantage, deadline extension or less likely to terminate the contract with supplier with whom they have had long term relationship with no negative experience than with those suppliers with whom buyers have had no experience (new supplier) or occasional negative relationship experiences. Past relationship experience with supplier also showed marginally significant interaction with environment uncertainty in influencing the decisions. Findings strengthen support for regulatory fit and behavioural theory in negotiation research.