Dynamic Buyer-Supplier Relationships and Supplier Participation in Online B2B Auctions

Abstract

Buyers often procure multiple goods and services from the same supplier. Accordingly, business exchanged in one setting may affect exchanges between the buyer and supplier other settings. We study how business procured via business-to-business (B2B) auctions is affected by business exchanged between the buyer and supplier concurrent to the auctions. Using two transactional datasets, one with auctions held by a large buyer of truckload transportation services over a four-year period and another with the buyer’s transactions with suppliers over the same time period but governed by long-term contracts, we analyze whether the contractual business affects decisions made in the B2B auctions. We find that concurrent business affects the participation decisions of both parties: the buyer is more likely to invite a supplier with whom they transact more concurrent business, and the supplier is more likely to bid. Concurrent business also affects supplier decisions in the form of reference prices. When a buyer and supplier have a preexisting price for the service up for auction, the supplier sometimes uses that as their bid price, with considerable heterogeneity explained by a supplier’s business model. We show that business external to an auction significantly affects buyer and supplier decisions in a B2B auction.