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Choosing between Auctions and Negotiations in Online B2B Markets for IT Services: The Effect of Prior Relationships and Performance

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  • Radkevitch, U.L.
  • van Heck, H.W.G.M.
  • Koppius, O.R.
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    Abstract

    The choice of contract allocation mechanism in procurement affects such aspects of transactions as information exchange between buyer and supplier, supplier competition, pricing and, eventually, performance. In this study we investigate the buyer’s choice between reverse auctions and bilateral negotiations as an allocation mechanism for IT services contracts. Prior studies into allocation mechanism choice focused on factors pertaining to discrete exchange situation, such as con-tract complexity or availability of suppliers. We broaden the research by focusing on buyers’ past exchange relationships with vendors. Based on the literature on the economics of contracting and agency theory, we hypothesize that prior re-peat interaction with vendors favors the use of negotiations over auctions in the next transaction, while the need to explore the marketplace due to buyer’s inexperience or dissatisfaction with vendor’s performance in the most recent project leads to the use of auctions instead of negotiations. We find support for these hypotheses in a longitudinal dataset of 2,081 IT projects realized by 91 repeat buyers at a leading online services marketplace over a period of eight years. Taken together, the results show that analyzing B2B auctions and negotiations should move beyond analyzing discrete instances and instead analyze them in the context of the individual firm’s history and supplier strategy.

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    Bibliographic Info

    Paper provided by Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam in its series ERIM Report Series Research in Management with number ERS-2008-004-LIS.

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    Date of creation: 04 Feb 2008
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    Handle: RePEc:ems:eureri:11288

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    Postal: RSM Erasmus University & Erasmus School of Economics, PoBox 1738, 3000 DR Rotterdam
    Phone: 31-10-408 1182
    Fax: 31-10-408 9020
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    Web page: http://www.erim.eur.nl/
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    Related research

    Keywords: IT services; online marketplace; outsourcing; reverse auctions;

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    References

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    1. M. Laura Donnet & Thomas D. Jeitschko & Dave D. Weatherspoon, 2011. "The Impact of E‐Auctions in Adjusting Procurement Strategies for Specialty Coffee," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 59(1), pages 63-86, 03.
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    Cited by:
    1. Andrey Shevchuk & Denis Strebkov, 2013. "Freelance contracting in the digital age: informality, virtuality and social ties," HSE Working papers WP BRP 12/SOC/2013, National Research University Higher School of Economics.

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