Hazards of the market: The continuity and dissolution of interorganizational market relationships

Abstract

We propose a theory of the market as an "intertemporal" process that integrates multiple theoretical perspectives. Using event-history methods, we analyze the dissolution of interorganizational market ties between advertising agencies and their clients as a function of three forces-competition, power, and institutional forces. The informal "rules of exchange" institutionalized in the "emergence" phase of the advertising services market include exclusivity (sole-source) and loyalty (infrequent switching). We find that most exchange relationships between advertising agencies and their clients are indeed exclusive, and most last for several years; but competition, power, and institutional forces support or undermine these rules. Most institutional forces reduce the risk of dissolution of agency-client ties. Powerful advertising agencies mobilize resources to increase tie stability, but powerful clients mobilize resources to increase or decrease stability. Competition is the weakest market force, but it has a consistent and substantial effect on tie dissolution: Competition always increases the risk of dissolution. We conclude that the market is institutionalized as imperfectly repeated patterns of exchange, because competition and changing norms about the duration of market ties destabilize market relationships.