Electronic reverse auction configuration and its impact on buyer price and supplier perceptions of opportunism: A laboratory experiment

Abstract

Buying organizations are increasingly using electronic reverse auctions (eRAs) to source from suppliers. However, recent quasi-experimental and field research has suggested that the use of this sourcing technique can create perceptions of opportunism among participating suppliers. Yet from the buyer's perspective, online reverse auctions can yield lower purchase prices. Given the many ways in which to configure on-line auctions, we extend existing research by using a laboratory experiment to investigate how different reverse auction configurations jointly influence bid price and suppliers’ perceptions of buyer opportunism. Our findings suggest that supplier bid prices decrease over time as they participate in more eRAs, regardless of the configuration of auction parameters. However, the combination of rank (versus price) visibility, high (versus low) supplier need to win a contract, and six (versus three) competitors was significantly more effective than other combinations of variables in immediately reducing bid prices. The data also indicated that when suppliers’ bids dropped substantially across auctions, their perceptions of opportunism increased. Notably, auction parameter combinations such as price visibility, three competitors, and low need for the contract yielded comparably low bids by the third auction, without any increases in perceived buyer opportunism.