The Impact of Online Reverse Auction Design on Buyer–Supplier Relationships

Abstract

As the use of online reverse auctions in industrial-sourcing activities grows, buyers and suppliers are increasingly concerned about these auctions' effects on their interorganizational performance (i.e., suspicions of opportunism, overall satisfaction, and future expectations). This research examines how the buyer's auction design (i.e., the number of bidders, the economic stakes, and price visibility) and the price dynamics over the course of the auction affect its relationship with suppliers. Analysis of 25 quasi experiments involving 125 suppliers and $385 million in procurement contracts suggests that the larger the number of bidders, the larger the economic stakes, and the less visible the price in an auction, the more positive is the impact on the interorganizational relationship. Large price drops (higher savings) over the course of the event have a detrimental effect on the buyer–supplier relationship. For auctions in which the lowest bidder wins, there is a decrease in opportunism suspicions as the economic stakes of the auction increase, and there is an increase in opportunism suspicions in auctions with greater price visibility. Implications for the management of industrial procurement activities are considered.