Justice and Contracts as Double‐Edged Swords: Collaborative Product Innovation in Hub‐and‐Spoke Supply Chain Networks

ABSTRACT This study explores how inter‐organizational justice, and formal contracts influence new product development (NPD) collaboration in supply chain networks. Challenging traditional transaction cost economics (TCE), the research focuses on collaborative NPD in hub‐and‐spoke supply chain structures. Data from 183 Chinese suppliers and 22 executive interviews reveal unexpected patterns in NPD collaboration. Procedural justice exhibits an inverted U‐shaped relationship with NPD collaboration, linking higher fairness to improved collaboration up to a point, beyond which further increases may associate with diminishing returns. In contrast, distributive justice shows a U‐shaped relationship with NPD collaboration, where higher equity initially relates to reduced collaboration but later correlates with renewed engagement. Notably, formal contracts amplify the negative interactions between these justice dimensions. This contradicts the conventional view of their complementary roles. These findings contribute to theoretical advancements by illustrating how inter‐organizational justice mechanisms function differently in complex network structures compared to simple dyadic relationships. Careful calibration of inter‐organizational justice dimensions and formal contracts proves essential for fostering productive NPD collaboration. These governance insights offer directions for enhancing supply chain relationship management.