The importance of coordination between independent organizations in a vertical distribution system is stressed in most discussions of marketing channels and inter-organizational relations. The nature and structure of the vertical relation affording effective coordination between autonomous firms or units has been a matter of research interest as well as managerial concern. This thesis attempts to develop and empirically validate a model for understanding the institutional mechanisms for coordination between firms vertically related to each other.

An emerging notion in organizational theory and economics is that the firm is a nexus of contracts and economic activities of the firm are governed by contracts ranging from the simple price-quantity contract to more complex adaptive as well as employment contracts. While most or all inter firm relations would be governed by a basic contract, the institutional framework under which any relation would be organized would vary with respect to the use of detailed, sequential contracts; pledges, guarantees and other informal or implicit agreements; and, power, dependency and centralized decision-making. The three institutional mechanisms, contracts, informal agreements, and coalitions differ with respect to their use of bonding mechanisms, power, conflict resolution, and enforcement of obligations. This research attributes the relative predominance of any one institutional mechanism in the vertical relation to relevant industry/market characteristics and firm/transaction considerations within a model unifying theories and concepts from diverse disciplines.

Empirical validation of the conceptual model is through a field survey (mail questionnaire) of respondents (mainly top and middle management personnel) drawn from some representative industries. The structural form of the interrelationships between the hypothesized constructs are examined through simultaneous equations modeling and the three-stage least squares estimation procedures.

The institutional environment is thus more realistically presented as arising from a combination of environmental and rational selection factors. Moreover, the economic, strategic, relational and transactional properties of inter-organizational relations are considered in one integrated framework. It is hoped that the findings of the study would lead to future theoretical insights that consider the economics, sociology and politics of organizations in a more integrative and realistic framework.