Buyer Commitment and Opportunism in the Online Market for it Services

37 Pages Posted: 23 Dec 2006 Last revised: 25 Jul 2013

See all articles by U. L. Radkevitch

U. L. Radkevitch

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM)

E. van Heck

Erasmus University Rotterdam (EUR) - Department of Technology and Operations Management

O. Koppius

Rotterdam School of Management, Erasmus University; Erasmus Research Institute of Management (ERIM)

Date Written: August 22, 2006

Abstract

Companies increasingly outsource IT-related tasks using reverse auction mechanisms embedded into online marketplaces. However, a considerable proportion of auctions at these marketplaces do not result in a contract between buyer and supplier. Extant literature mostly refers to costly bidding and bid evaluation to explain this phenomenon. Another possible explanation is that because of the low entry barriers, buyers with a low commitment to exchange can use the marketplace solely for information gath-ering purposes such as price benchmarking and obtaining free consultations, having little or no intention to contract a supplier. We test this explanation by looking at how different types of costs incurred by the buyer during the sourcing process, are related to the outcome of reverse auctions in terms of contract award. We argue that higher levels of search, preparation and negotiation costs are associated with higher commitment to exchange and find that opportunistic behaviour does indeed play a part in the non-contracted projects, while committed buyers are more likely to enter into a contract with a supplier. The hypotheses are tested on a sample of 2,574 reverse auctions at a leading online marketplace for IT services and further verified across projects of different value and different levels of buyer experience. On the practical side, we recommend setting up entry barriers for buyers with a low level of commitment.

Keywords: IT Outsourcing, Online Markets, Opportunism, Reverse Auctions, Transaction Costs

Suggested Citation

Radkevitch, Uladzimir and van Heck, Eric and Koppius, Otto, Buyer Commitment and Opportunism in the Online Market for it Services (August 22, 2006). ERIM Report Series Reference No. ERS-2006-046-LIS. Available at SSRN: https://ssrn.com/abstract=925988

Uladzimir Radkevitch (Contact Author)

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM) ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam, 3000 DR
Netherlands

Eric Van Heck

Erasmus University Rotterdam (EUR) - Department of Technology and Operations Management ( email )

RSM Erasmus University
PO Box 1738
3000 DR Rotterdam
Netherlands
+31 10 408 2032 (Phone)
+31 10 408 9010 (Fax)

HOME PAGE: http://people.fbk.eur.nl/eheck/personal/

Otto Koppius

Rotterdam School of Management, Erasmus University ( email )

RSM Erasmus University
PO Box 1738
3000 DR Rotterdam
Netherlands
+31 10 408 2032 (Phone)
+31 10 408 9010 (Fax)

Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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