Why Transaction History Matters? Disentangling Effects of Routinization and Adaptation of Repeat Exchange Experiences

Jiao Luo (University of Minnesota)
Paul Ingram (Columbia University)

Abstract: Whether a history of transactions between buyer and supplier produces routinization benefits and/or adaptive benefits is a question of great relevance for understanding transaction performance, firm performance, and innovation. We theoretically delineate the differences between routinization and adaptation benefits of transaction history, and develop discriminating predictions that distinguish the two. We examine these predictions using an unusually detailed data set on transaction outcomes for a prominent producer in a historically significant industry. We find that repeat transactions produced overall efficiencies for the producer and its buyers, in the form of lower production costs and lower transaction costs. Our results also support the idea that repeat-transactions between buyer and supplier are adaptive, producing benefits not only for doing the same things again and again, but for doing new things. We discuss how the strategic capability of a firm depends on its history.