THE EVOLUTION AND PERSISTENCE OF DOMINANT ROLES IN INTERORGANIZATIONAL RELATIONSHIPS † VICTOR A. BARGER, University of Wisconsin–Madison ABSTRACT Recent application of role theory to economic behavior (Montgomery 1998) has provided new insights into interorganizational relationships (Heide and Wathne 2006). In particular, role theory offers a framework for investigating the source of seemingly contradictory accounts of economic exchange, including Uzzi’s (1997; 1996) finding that embeddedness enhances firm survival in the apparel industry and Wathne, et al.’s (2001) discovery that embeddedness does not insulate a firm from price competition in the commercial banking industry. The key to understanding these discrepancies lies in the divergent evolution of dominant relationship roles. This paper investigates the evolution and persistence of roles in interorganizational relationships from a role-theoretic perspective using agent-based modeling. Keywords: interorganizational relationships, role theory, economic behavior, agent- based modeling INTRODUCTION According to the classical and neoclassical schools of thought, economic transactions are coordinated through the mechanism of price; that is, the totality of information necessary for exchange is communicated by the price associated with the transaction. Moreover, economic actors are rational, utility maximizing, and self-interested. Granovetter (1985) criticizes this view of economics as “undersocialized,” in that it “disallow[s] by hypothesis any impact of social structure and social relations on production, distribution, or consumption.” He contends that economic behavior is “embedded” in social relations and that these relations have a significant impact on how actors behave. This, then, is the “problem of embeddedness”: that “behavior and institutions to be analyzed are so constrained by ongoing social relations that to construe them as independent is a grievous misunderstanding” (Granovetter 1985). Granovetter’s hypothesis is supported by empirical research in the apparel industry. Uzzi (1997; 1996) found that firms that rely on arm’s length market transactions are more likely to fail than are firms that leverage social relations. He attributes this outcome to three features of embedded transactions: trust, information sharing, and joint problem solving. More recently, however, Wathne, Biong, and Heide (2001) uncovered evidence to the opposite effect: in the commercial banking industry, social relations are ineffective at protecting firms from price and product competition. Although social relations can create a barrier to switching, they are outweighed by firm-level switching costs and competitor superiority in price or product breadth. † Citation: Barger, Victor A. (2007), “The evolution and persistence of dominant roles in interorganizational relationships,” in Proceedings of the Agent 2007 Conference on Complex Interactions and Social Emergence, eds. Sallach, D.L., C.M. Macal, and M.J. North, November 15-17.