The signaling effect of supplier's customer network instability on service price: Insights from the container shipping charter market.

In a service exchange setting, the supply management literature generally assumes, with notable exceptions, the availability of complete information regarding supplier reliability. Highlighting the information asymmetry in supplier evaluation and using signaling theory, we argue that for a focal buyer, a supplier's downstream ego‐network instability, that is, other buyers' turnover in a supplier's network from one period to the next, acts as a signal of supplier unreliability, thereby reducing the price that the buyer pays to the supplier in a service exchange. Furthermore, we suggest that focal buyer–supplier relationship strength and structural equivalence weaken the negative effect of instability because the buyer has a more direct and positive experience with the supplier. Using a dataset of 3263 unique dyads formed by 260 buyers (shipoperators) and 493 suppliers (shipowners) during the 2000–2018 period in the container shipping charter market, we find support for our hypotheses, except for the contingent effect of structural equivalence. Our study contributes to signaling literature and network research by developing a supplier's downstream ego‐network instability as a salient heuristic for a focal buyer's pricing decisions. These findings equip buyer managers who may not accurately foresee supplier service quality in the charter market with a new supplier evaluation tool: a supplier's downstream ego‐network instability. Highlights: For shipoperator buyer managers making pricing decisions in the container shipping charter market, turnover (instability) in the supplier's network of direct buyer relations acts as a relevant supplier evaluation tool.A shipowner supplier whose downstream network exhibits instability may signal unreliability of service quality, and in this regard switching buyers can backfire for suppliers in terms of potential buyers' evaluations and pricing decisions.The relational embeddedness of buyer‐supplier relationships helps mitigate the effects of negative external signals about supplier reliability originating elsewhere in the supplier network, suggesting the relevance for shipowner supplier managers of nurturing and strengthening one‐to‐one existing relationships with buyers. [ABSTRACT FROM AUTHOR]