The Screening Role of Auction Design Parameters in Online Service Outsourcing Platforms

Information Systems Research, forthcoming

41 Pages Posted: 1 May 2018 Last revised: 1 Aug 2022

See all articles by Chen Liang

Chen Liang

University of Connecticut - School of Business

Yili Hong

University of Miami Herbert Business School

Pei-Yu Chen

Arizona State University (ASU) - Department of Information Systems

Benjamin B. M. Shao

Arizona State University (ASU) - Department of Information Systems

Date Written: April 2, 2018

Abstract

This paper provides a novel theoretical angle and robust empirical evidence demonstrating that the auction duration and the item description length are two essential auction design parameters that can function as a screening mechanism for bidder quality on online service outsourcing platforms. These outsourcing platforms use buyer-determined reverse auctions to find providers of services (primarily IT services). Using data from a major online outsourcing platform that connects buyers with bidders, we examine the effects of the auction duration and the item description length on both bidder entry (i.e., the number of bids and bidder quality) and contract outcomes (i.e., whether a project is contracted and the buyer’s expected utility from the winning bid) based upon not only the project-level but also bidder-level analyses. Our results show that auctions with longer durations and item descriptions attract more bids (i.e., higher quantity of bidders) but they also attract disproportionately more bidders with lower completion rates (i.e., lower quality of bidders), creating a double whammy of higher evaluation costs and adverse selection for buyers. This, in turn, leads to contracting inefficiency in terms of less successful contracting as well as lower buyer utility. Our research shows strong support for the screening role of the auction duration and the item description length for buyers on online outsourcing platforms for service procurement: by shortening auction durations and item descriptions, buyers can expect higher quality bidders, increase contracting probability, and enhance utility.

Keywords: auction design, auction duration, item description, bidder entry, screening, outsourcing

Suggested Citation

Liang, Chen and Hong, Yili and Chen, Pei-Yu and Shao, Benjamin B. M., The Screening Role of Auction Design Parameters in Online Service Outsourcing Platforms (April 2, 2018). Information Systems Research, forthcoming, Available at SSRN: https://ssrn.com/abstract=3161216 or http://dx.doi.org/10.2139/ssrn.3161216

Chen Liang

University of Connecticut - School of Business ( email )

2100 Hillside Road, Unit 1041
UConn School of Business OPIM
Storrs, CT Connecticut 06269
United States
06269 (Fax)

Yili Hong (Contact Author)

University of Miami Herbert Business School ( email )

P.O. Box 248126
Florida
Coral Gables, FL 33124
United States

Pei-Yu Chen

Arizona State University (ASU) - Department of Information Systems ( email )

Tempe, AZ
United States

Benjamin B. M. Shao

Arizona State University (ASU) - Department of Information Systems ( email )

Tempe, AZ
United States

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