Buyer Intention to Use Internet-Enabled Reverse Auctions: The Role of Asset Specificity, Product Specialization, and Non-Contractibility

Abstract

IT-enabled exchanges in electronic markets have significant implications for buyer-supplier relationships. Building on studies that emphasize the role of intangible assets in inter-organizational relationships, this study argues that buyers are less likely to use reverse auctions for supplier relationships involving a high degree of non-contractibility. The argument complements traditional transaction cost economics arguments that focus on the impact of asset specificity and product specialization. We identify six dimensions of non-contractibility: Quality, supplier technological investments, information exchange, responsiveness, trust, and flexibility, which encompass task-based and interaction-based non-contractibility. The study finds that, together with product specialization, these non-contractible elements of inter-organizational relationships have greater explanatory power for reverse auction use than asset specificity. This result highlights the importance of supplier investments in non-contractible elements of exchange relationships in an increasingly dynamic service- and knowledge-based economy.

Keywords: Reverse Auctions, Procurement auctions, Electronic Markets, Transaction cost economics, Inter-organizational relationships, Buyer-supplier relationships, Incomplete Contracts Approach, Non-contractibility, Business-to-business auctions.

JEL Classification: C93, M1, L22