The Role of Auction Parameters in Online Outsourcing Platforms for Service Procurement

35 Pages Posted: 1 May 2018

See all articles by Yili Hong

Yili Hong

Arizona State University (ASU) - W.P. Carey School of Business

Pei-Yu Chen

Arizona State University (ASU) - Department of Information Systems

Benjamin B. M. Shao

Arizona State University (ASU) - Department of Information Systems

Chen Liang

Arizona State University (ASU), W.P. Carey School of Business, Department of Information Systems, Students

Date Written: April 2, 2018

Abstract

This research shows that auction duration and description are two essential auction design parameters that function as screening mechanisms for bidder quality on popular online outsourcing platforms that use buyer-determined reverse auctions in order to find service providers. Using data from a major online outsourcing platform that connects buyers with information technology (IT) service vendors, we examine the effects of the description and duration of auctions on both bidder entry (i.e., number of bids, bidder quality, bidding price) and contracting decisions (i.e., whether a project is awarded, the quality of the chosen winner, and whether project is completed). Our empirical analyses show that auctions with longer durations and descriptions attract more bids (i.e., higher quantity of bidders), but they also attract more low-quality bidders with lower win rates and lower completion rates (i.e., lower quality of bidders), which creates a double whammy situation, leading not only to higher evaluation costs (due to more bids) but also to an adverse-selection environment (due to more low-quality bidders), which in turn results in a lower probability of successful contracting and completion of IT-service projects. Our research provides empirical evidence demonstrating that auction design parameters like auction duration and auction description could potentially serve as screening mechanisms for online outsourcing platforms for service procurement.

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

Suggested Citation

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

Yili Hong (Contact Author)

Arizona State University (ASU) - W.P. Carey School of Business ( email )

Tempe, AZ 85287-3706
United States

HOME PAGE: http://yilihong.github.io/

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

Chen Liang

Arizona State University (ASU), W.P. Carey School of Business, Department of Information Systems, Students ( email )

Tempe, AZ
United States

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