Modeling uncertainty in buyer–seller cooperation Kent Eriksson a, * , D. Deo Sharma b,c a Centre for Banking and Finance, Sodertorn University College, Box 4101, SE-14104 Huddinge, Sweden b Department of Marketing, Stockholm School of Economics, Box 6501, 11383 Stockholm, Sweden c Department of Marketing, Copenhagen Business School, Solbjerg Plads 3, DK-2000 Frederiksberg C., Denmark Abstract The realization of relationship marketing requires cooperative exchange between buyers and sellers. A key determinant of cooperative exchange is the uncertainty perceived by the cooperating parties. This study investigates how cooperation is affected by decision makers’ perception of uncertainties in the environmental context, in relationships, and in decision-making routines. A sample of 135 branch managers from banks is used in a LISREL model. The results show that uncertainty regarding relationships and decision making has strong direct effects on buyer– seller cooperation. Relationship and decision making, in turn, are affected by contextual uncertainty. The results highlight the importance of internal resources in firms in facilitating cooperation between buyers and sellers. D 2002 Elsevier Science Inc. All rights reserved. Keywords: Relationship; Uncertainty; Decision; Context; Cooperation 1. Introduction The last decade has witnessed growing research in relationship marketing and networks in marketing. The importance of relationship building and cooperation with customers has been highlighted by Alter and Hage (1993), Anderson and Narus (1990), Anderson and Weitz (1992), Axelrod (1984), Ford (1996), and Morgan and Hunt (1994). In order to promote cooperation with buyers, marketers adapt to the needs of the specific customer (Halle ´n et al., 1991). Cooperation moves the buyer –seller exchange away from the market and involves specific investments in assets and competencies. However, buyer – seller cooperation is surrounded by uncertainty (Achrol and Stern, 1988). Ouchi (1980) identified uncertainty as ‘‘the fundamental problem of co-operation’’ (p. 130). Uncertainty in buyer–seller cooperation arises for a variety of reasons, such as oppor- tunistic behavior of the counterpart (Williamson, 1985), or lack of knowledge (Sharma, 1998), and it influences the commitments made and the governance structure applied in the cooperation (Gulati, 1995). Our understanding of uncer- tainty involved in buyer – seller cooperation is limited (Das and Teng, 1996). The purpose is to investigate the structure of the total package of uncertainty in buyer –seller cooper- ation. Three interrelated issues are investigated. First, what are the different components of uncertainty in buyer–seller exchange? Secondly, are these different types of uncertainty related? If yes, how? Finally, how do these different components of uncertainty affect buyer – seller cooperation? We define ‘‘uncertainty’’ as a perceived gap between expected and actual future outcome. This is close to Cook and Emerson’s (1983) definition in which uncertainty ‘‘relates to the subjective probability of concluding a sat- isfactory transaction with any partner’’ (p. 13). Uncertainty implies an imperfect knowledge on the part of the decision makers (Galbraith, 1994). Uncertainty can be either subjective or objective. To treat uncertainty objectively is, however, difficult (March and Shapira, 1987). In addition, uncertain situations generally result in perception of high uncertainty. Therefore, the focus of this paper is on uncertainty as perceived by the decision makers. The decision makers in firms decide when, where, and how a company’s resources are to be invested. Con- sequently, decision makers’ perceptions of uncertainty affect the cooperation in which their firm takes part, as well as the depth, timing, and scope of this cooperation. As stated earlier, the perception of uncertainty in cooperation affects the governance devices used and the level of resource commitment in the cooperation. We base our arguments on the relational view on coop- eration (Dyer and Singh, 1998), we make a distinction 0148-2963/02/$ – see front matter D 2002 Elsevier Science Inc. All rights reserved. doi:10.1016/S0148-2963(01)00331-9 * Corresponding author. Centre for Banking and Finance, Sodertorn University College, Box 4101, SE-14104 Huddinge, Sweden. Tel.: +46-70- 2092612; fax: +46-18-471-555386. E-mail address: kent.eriksson@fek.uu.se (K. Eriksson). Journal of Business Research 56 (2003) 961 – 970