Trustworthiness as a Source of Competitive Advantage

Strategic Management Journal, Vol. 15, 175-1 90 (I 994)

TRUSTWORTHINESS AS A SOURCE OF COMPETITIVE ADVANTAGE
JAY 6. BARNEY
Fisher College of Business, The Ohio State University, Columbus, Ohio, U.S.A.

MARK H. HANSEN
College of Business Administration, Texas A & M University, College Station, Texas, U.S.A.

Three types of trust in economic exchanges are identified: weak form trust, semi-strong form trust, and strong form trust. It is shown that weak form trust can only be a source of competitive advantage when competitors invest in unnecessary and expensive governance mechanisms. Semi-strong form trust can be a source of competitive advantage when competitors have differential exchange governance skills and abilities, and when these skills and abilities are costly to imitate. The conditions under which strong form trust can be a source of competitive advantage are also identified. Implications of this analysis for theoretical and empirical work in strategic management are discussed.

Significant differences in assumption and method incorrect (since most exchange partners are, in exist between behaviorally oriented and economi- fact, trustworthy), socially inefficient (since it cally oriented organizational scholars leads to an overinvestment in unnecessary (Donaldson, 1990; Barney, 1990). While these governance), and morally bankrupt (Etzioni, differences manifest themselves in a wide variety 1988). A more reasonable approach, it is argued, of research contexts, no where are they more would adopt the assumption that most exchange obvious than in research on the role of trust in partners are trustworthy, that they behave as economic exchanges. stewards over the resources they have under On the one hand, behaviorally oriented their control (Donaldson and Davis, 1991), and researchers often criticize economic models that thus that trust in exchange relationships-even assume exchange partners are inherently untrust- without legal and contractual governance

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