To Bid or Not to Bid: Drivers of Bidding Behavior in Electronic Reverse Auctions

Article excerpt

INTRODUCTION

Electronic reverse auctions (e-RAs), also referred to as online reverse auctions, generate billions of dollars in business-to-business transactions and are now used by every major industry (Sehwail, Ingalls and Pratt 2008; Ganesan, George, lap, Palmatier and Weitz 2009). The increasing popularity of e-RAs has resulted in a burgeoning of academic research. The literature is particularly rich in examining the feasibility and appropriate uses of e-RAs (Kaufmann and Carter 2004; Foroughi, Kocakulah and Williams 2008; Hawkins, Randall, and Wittmann 2010), beneficial and controversial aspects of e-RAs in buyer-seller relationships (Beall, Carter, Carter, Germer, Hendrick, Jap, Kaufmann, Maciejewski, Monczka and Petersen 2003; Pearcy Giunipero and Wilson 2007; Caniels and van Raaij 2009), and factors that affect buyers' information processing and decision-making in e-RAs (Smeltzer and Carr 2003; Haubl and Popkowski Leszczyc 2004; Ding, Eliashberg, Huber and Saini 2005). Nevertheless, the majority of e-RA research has focused on the buyer's perspective while fewer studies have focused on suppliers' decision making in e-RAs. For example, anecdotal evidence exists regarding phenomena such as auction bidding frenzy (Jap 2002; Carter, Kaufmann, Beall, Carter, Hendrick and Petersen 2004), yet the actual mechanisms that influence the decision to place an individual bid have not been explored.

The current study addresses an important gap in the literature by focusing on the factors that affect suppliers' decision-making in an e-RA. Specifically, the personal characteristics of the decision maker, bidding history and experience, auction characteristics and timing are among the factors believed to have an impact on the propensity to submit bids in e-RAs. Hypotheses are tested using data from a published study that employed a laboratory experiment to investigate the effect of e-RA auction configuration on prices and supplier perceptions of buyer opportunism (Carter and Stevens 2007). Whereas the prior study analyzed the bid amounts and survey responses, the present study examines suppliers' propensities to submit bids (irrespective of the bid amounts) at successive time intervals during the auction.

The remaining content of this article is organized as follows. We review the literature on e-RAs and auction bidding behavior, present the theoretical perspectives and research hypotheses, describe the methodology, and discuss the findings and strategic implications to buying organizations and suppliers.

LITERATURE REVIEW AND HYPOTHESES

e-RAs and Auction Bidding Behavior

In an e-RA, the buying organization posts a full specification for the product that it wants to purchase and then invites a group of prequalified suppliers (sellers) to bid in an online, real time dynamic auction (Beall et al. 2003; Jap and Haruvy 2008). Theoretically, bidding price is driven down when multiple suppliers compete against each other to meet the buyer's product specifications in an effort to win the purchase contract (Cullen and Webster 2007).

As e-RAs become standard in many procurement activities (Engelbrecht-Wiggans, Haruv and Katok 2007), buying organizations and suppliers face unique opportunities and challenges. The nature of e-RAs (e.g., full product specifications, prequalification of suppliers, and instantaneous online bidding) offers several benefits to buying organizations, which include cost and cycle time reductions, product quality improvements, and a broader supplier base (Moser 2002; Beall et al. 2003). e-RAs also provide suppliers with the opportunity to obtain new business, strengthen (or protect) their strategic position with the buyer, and accelerate transaction time (Engelbrecht-Wiggans et al. 2007; Dixit, Thomas, Zinkhan and Gailey 2008; Jap and Haruvy 2008).

Although e-RAs offer many potential benefits, they may also introduce dynamics that harm long-term relationships between buyers and suppliers (Amelinckx, Muylle and Lievens 2008; Caniels and van Raaij 2009). …