The Economic Consequences of Risk Absorption in Business-to-Business Relationships: Evidence from Indirect Auto Lending

Risk absorption, where one party assumes risk to support a partner, is common in business-to-business (B2B) relationships but remains underexplored both as a form of relationship marketing investment and in its economic consequences. This study investigates risk absorption in the indirect car loan market, where third-party lenders approve loans for high-risk consumers, enabling auto dealers to close sales that might otherwise fall through. Using a three-year dataset from a loan supplier working with 1,550 dealers, the authors examine both the direct costs of risk absorption (e.g., delinquency payments) and the behavioral responses of dealers. They find that dealers often reciprocate by referring more loans after receiving risk absorption, but these referrals tend to carry higher risk, suggesting opportunistic behavior. Dealer responses are heterogeneous: Those with higher operational risk exhibit both stronger reciprocity and exploitation. Moreover, reciprocal behavior grows stronger early in the relationship and fades over time, whereas exploitative tendencies do not vary with relationship length. These findings provide new insight into how risk absorption unfolds across varying dealer profiles in B2B contexts.