Cooperative strategies in customer-supplier relationships: The role of interfirm trust

In this paper we model the real cost structures of three customer-supplier relationships through a game theory approach. The three cases demonstrate the benefits of mutual interfirm trust in financially measurable terms. Indeed, interfirm trust can decrease the transaction costs of the relationship, thus providing competitive advantage for the partners. Moreover, we present a pricing arrangement that partially compensates the possible lack Of Mutual trust. A practical implication is that managers should pay more attention to the role of interfirm trust in partner selection processes. (C) 2008 Elsevier B.V. All rights reserved.