This research aims to analyse the potential role of perceived fairness as a complete governance mechanism in distribution channels. In doing so, this study examines the direct impact of perceived fairness on governance costs and its interactive effect on the driver (i.e. relationship-specific investments (RSIs) and deterrent (i.e. communication) of suppliers’ governance costs.
This research used a structural modelling approach to analyse the matched data collected from 241 pharmaceutical suppliers and distributors and test the proposed model.
The findings reveal that perceived fairness directly reduces governance costs in distribution channels. Further, they suggest that perceived fairness weakens the positive impact of suppliers’ RSIs and strengthens the negative effects of communication on suppliers’ governance costs.
This study suggests that perceived fairness is a novel and effective way to govern distribution channels. These findings provide a holistic understanding of how perceived fairness reduces governance costs, directly and indirectly.
The findings suggest managers should design fair channel policies and train sales personnel to emphasise fairness during channel interactions. This would foster an equitable channel climate that safeguards investments and reduces governance efforts.
Prior literature has mostly overlooked the potential role of perceived fairness in distribution channels; however, this study addresses this gap and highlights the dual role of perceived fairness in channel governance.
