Friends and Profits Don't Mix: The Performance Implications of Repeated Partnerships

Firms use repeated partnerships to gain the benefits of shared experience such as improved coordination, collaboration, and adaptation.   However, there are downsides to partnering repeatedly, including myopia to other options and vulnerability to opportunistic partners upon whom the firm becomes dependent.   This paper unpacks the effects of these relationships by investigating their impact on two distinct types of performance: growth and profitability.  To understand repeated partnerships, we analyze a unique dataset of 580 partner networks that completed 144 bridge construction projects.  Controlling for project attributes that affect the level of outsourcing, we posit that a greater proportion of repeated partners will result in a greater likelihood of obtaining new business through winning bids, but that the buying firm will not garner large profits because repeat partners expect to be rewarded for their flexibility and commitment.  We find support for these predictions, highlighting the trade-offs of relational governance.