When the small gives the big a turbo push

In entering an exchange relationship a high-status firm is often induced into searching an affiliation with a firm of similar status. But What's in It fot Them? Advantages of Higher-Status Partners in Exchange Relationships, a study by Fabrizio Castellucci, of theDepartment of Management of Università Bocconi, e Gokhan Ertug, Singapore Management University, published in the Academy of Management Journal (vol. 53, No. 1 febbraio 2010), argues and illustrates that there are notable benefits in terms of effort secured, and resulting performance, in forming agreements with lower status firms.

The paper argues that a high-status firm secures greater effort from a lower-status partnerwhich will be willing to expend greater effort in return for the status increase that the affiliation entails, and that such effort will be proportional to the disdadvantage in status between the two. Such effort mitigates the difference in status and translates to increased performance or product quality.

To support their argument the authors use data on the relationship between racing teams and their engine suppliers in the Formula 1 championship. The question of greater effort secured manifests itself especially when the quality of the exchanged good is not of the desired level and so the authors concentrated their analysis on the occurrences of engine malfunction.

The authors analysed the racing seasons from 1993 to 1999, defining the status of the F1 teams (on the basis of, among other, sponsorship deals, press mentions and a survey among sector journalists) and engine suppliers (based on the status of teams supplied during the previous season). Constructing an interaction between engine-related retirements from races and team status the authors concluded that the F1 teams obtained greater effort from their engine suppliers, in terms of modification or redesign, as the difference in status between the two grows.

It thus emerges that high-status F1 teams obtain greater effort from lower-status engine suppliers respect to teams who turn to similar status suppliers. Furthermore, such modifications or redesigns then resulted in a better performance for the F1 teams in terms of points obtained in the following races, thus mediating the effect of affiliation with a lower-status partner.

"This study helps explain the motivations that high-status firms have to enter exchange relationships with lower-status partners," conclude the authors.