Market governance mechanisms (MGMs) are formal, or informal rules, that have been consciously designed to change the behaviour of various economic actors.
An example of an alliance structured with a market governance mechanism is a legal agreement between two organizations to distribute, license or export a particular product.
The success and failure of market governance mechanisms is highly political, and is therefore likely to require more than just formal changes to rules and regulations.
Without investing sufficient resources, intent, and time, market governance is just a simple buyer-to-seller relationship that is relatively standardized and straightforward (Ring and Van de Ven, 1994; Larsson et al., 1998).
If only simply deploying code monitoring, buyers from AEs may defend their brands or reputation against NGO or customer criticism, but cannot actively pursue meaningful improvement of supplier’s compliance.
Even though, as a result, buyers from AEs must be aware that an emphasis on market governance (i.e. threatening, monitoring, or inspecting) may actually be more costly in the long run (Roth et al., 2008).