Choosing between Auctions and Negotiations in Online B2B Markets for IT Services: The Effect of Prior Relationships and Performance
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.
|Date of creation:||04 Feb 2008|
|Contact details of provider:|| Postal: RSM Erasmus University & Erasmus School of Economics, PoBox 1738, 3000 DR Rotterdam|
Phone: 31-10-408 1182
Fax: 31-10-408 9020
Web page: http://www.erim.eur.nl/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Douglas W. Allen & Dean Lueck, 1993. "Transaction Costs and the Design of Cropshare Contracts," RAND Journal of Economics, The RAND Corporation, vol. 24(1), pages 78-100, Spring.
- Bajari, Patrick & Tadelis, Steven, 2001.
"Incentives versus Transaction Costs: A Theory of Procurement Contracts,"
RAND Journal of Economics,
The RAND Corporation, vol. 32(3), pages 387-407, Autumn.
- Patrick Bajari & Steven Tadelis, 1999. "Incentives versus Transaction Costs: A Theory of Procurement Contracts," Working Papers 99029, Stanford University, Department of Economics.
- Alston, Lee J & Datta, Samar K & Nugent, Jeffrey B, 1984. "Tenancy Choice in a Competitive Framework with Transactions Costs," Journal of Political Economy, University of Chicago Press, vol. 92(6), pages 1121-1133, December.
- Bulow, Jeremy & Klemperer, Paul, 1996. "Auctions versus Negotiations," American Economic Review, American Economic Association, vol. 86(1), pages 180-194, March.
- Arturs Kalnins, 2004. "Relationships and Hybrid Contracts: An Analysis of Contract Choice in Information Technology," Journal of Law, Economics and Organization, Oxford University Press, vol. 20(1), pages 207-229, April.
- Eli M. Snir & Lorin M. Hitt, 2003. "Costly Bidding in Online Markets for IT Services," Management Science, INFORMS, vol. 49(11), pages 1504-1520, November.
- Kenneth S. Corts, 2004. "The Effect of Repeated Interaction on Contract Choice: Evidence from Offshore Drilling," Journal of Law, Economics and Organization, Oxford University Press, vol. 20(1), pages 230-260, April.
- 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.
- Allen, Douglas W & Lueck, Dean, 1992. "The "Back Forty" on a Handshake: Specific Assets, Reputation, and the Structure of Farmland Contracts," Journal of Law, Economics and Organization, Oxford University Press, vol. 8(2), pages 366-376, April.
- Abhijit V. Banerjee & Esther Duflo, 2000. "Reputation Effects and the Limits of Contracting: A Study of the Indian Software Industry," The Quarterly Journal of Economics, Oxford University Press, vol. 115(3), pages 989-1017.
- Van Tulder, Rob & Mol, Michael, 2002. "Reverse Auctions or Auctions Reversed:: First Experiments by Philips," European Management Journal, Elsevier, vol. 20(5), pages 447-456, October.
- Michael H. Rothkopf & Ronald M. Harstad, 1994. "Modeling Competitive Bidding: A Critical Essay," Management Science, INFORMS, vol. 40(3), pages 364-384, March.
- J. Yannis Bakos, 1997. "Reducing Buyer Search Costs: Implications for Electronic Marketplaces," Management Science, INFORMS, vol. 43(12), pages 1676-1692, December.
- Edieal J. Pinker & Abraham Seidmann & Yaniv Vakrat, 2003. "Managing Online Auctions: Current Business and Research Issues," Management Science, INFORMS, vol. 49(11), pages 1457-1484, November.
- Scott M. Carr, 2003. "Note on Online Auctions with Costly Bid Evaluation," Management Science, INFORMS, vol. 49(11), pages 1521-1528, November.
- Victor P. Goldberg, 1977. "Competitive Bidding and the Production of Precontract Information," Bell Journal of Economics, The RAND Corporation, vol. 8(1), pages 250-261, Spring.
- Tunay I. Tunca & Stefanos A. Zenios, 2006. "Supply Auctions and Relational Contracts for Procurement," Manufacturing & Service Operations Management, INFORMS, vol. 8(1), pages 43-67, February.
- Seungjin Whang, 1995. "Market Provision of Custom Software: Learning Effects and Low Balling," Management Science, INFORMS, vol. 41(8), pages 1343-1352, August.
- Peter Kennedy, 2003. "A Guide to Econometrics, 5th Edition," MIT Press Books, The MIT Press, edition 5, volume 1, number 026261183x, July. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:ems:eureri:11288. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (RePub)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.