Choosing between Auctions and Negotiations in Online B2B Markets for IT Services: The Effect of Prior Relationships and Performance
AbstractThe 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 InfoPaper 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.
Date of creation: 04 Feb 2008
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More information through EDIRC
IT services; online marketplace; outsourcing; reverse auctions;
Find related papers by JEL classification:
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
- M - Business Administration and Business Economics; Marketing; Accounting
- O32 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Management of Technological Innovation and R&D
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