Power Imbalance, Mutual Dependence, and Constraint Absorption: A Closer Look at Resource Dependence Theory

Despite ubiquitous references to Pfeffer and Salancik's classic volume, The External Control of Organizations, resource dependence theory is more of an appealing metaphor than a foundation for testable empirical research. We argue that several ambiguities in the resource dependence model account in part for this and propose a reformulation of resource dependence theory that addresses these ambiguities, yields novel predictions and findings, and reconciles them with seemingly contradictory empirical evidence from past studies. We identify two distinct theoretical dimensions of resource dependence, power imbalance and mutual dependence, which in the original theory were combined in the construct of interdependence and yet have opposite effects on an organization's ability to reduce dependencies by absorbing sources of external constraint. Results from a study of interindustry mergers and acquisitions among U.S. public companies in the period 1985–2000 indicate that, while mutual dependence is a key driver of mergers and acquisitions, power imbalance acts as an obstacle to their formation. We conclude that our reformulation of the resource dependence model contributes to realizing the potential of resource dependency as a powerful explanation of interorganizational action.