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Effect of Contract Ambiguity in Interorganizational Governance

Effect of Contract Ambiguity in Interorganizational Governance

Xu (Vivian) Zheng, David Griffith, Ling Ge and Uri Benoliel

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Contract ambiguity in relation to one’s obligations can be a strategic tool to enhance joint problem solving and collaboration while also deterring litigation, thereby enhancing performance.

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Related Marketing Courses: ​
Business-to-Business Marketing; Marketing Strategy; Retail Marketing​​​​ ​​​​

Full Citation: ​
Zheng, Xu (Vivian), David A. Griffith, Ling Ge, and Uri Benoliel (2020), “Effects of Contract Ambiguity in Interorganizational Governance,” Journal of Marketing, 84 (4), 147–67.

Article Abstract
This work introduces the concept of contract ambiguity from the law literature into the interorganizational governance literature. Examined within the context of franchising, this work presents a three-study, multi-method design empirically establishing the construct of contract ambiguity of franchisor obligations, providing new insights into the strategic design of contracts and their outcomes. In the first study, construct validity is established by demonstrating that contract ambiguity of franchisor obligations is distinct from contract specificity and contract completeness of franchisor obligations, having differential outcomes. Then, in studies two and three, the work demonstrates that contract ambiguity of franchisor obligations increases an interest-based over a rights-based conflict solving approach, implying greater cooperation and joint problem solving, and reduces franchisee-initiated litigation. The findings also indicate that while contract ambiguity of franchisor obligations decreases franchisee-initiated litigation, this effect is amplified by higher levels of franchisor training programs, but mitigated by the presence of a franchisee association. Implications for academics and practitioners are discussed.

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Special thanks to Kelley Gullo and Holly Howe, Ph.D. candidates at Duke University, for their support in working with authors on submissions to this program.

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Xu (Vivian) Zheng is Assistant Professor of Marketing, College of Business, City University of Hong Kong, Hong Kong.

Ling Ge is Assistant Professor, Department of Information Technology & Decision Science, G. Brint Ryan College of Business, University of North Texas.

Uri Benoliel is Senior Lecturer, Commercial Law Department, College of Law and Business, Ramat Gan, Israel.