An Exploratory Study of the Introduction of Online Reverse Auctions

An Exploratory Study of the Introduction of Online Reverse Auctions
Author(s): Jap, Sandy D.
Year: 2003
Paper Number: GBS-MKT-2003-001
Goizueta Department: Marketing

Abstract

Buyers are increasingly turning to online reverse auctions in their negotiations with suppliers. How do these price competition mechanisms affect buyer-supplier relationships? I consider this question in the context of a quasi-experiment involving six online reverse auctions conducted in the supply base of a major industrial buyer. The results indicate that these auctions increase both new and current suppliers’ beliefs that the buyer would act opportunistically, particularly when open-bid auctions are used. Paradoxically, the supplier’s response in sealed-bid auctions is to increase willingness to make dedicated investments toward the buyer. Although these auctions can yield cost savings, the savings are category-specific and not systematically related to an open or sealed-bid format. Implications for the use of online reverse auctions in industrial sourcing activities are also discussed.