Risks and Controls in Internet-Enabled Reverse Auctions: Perspectives from Buyers and Suppliers

Abstract

Internet-enabled reverse auctions (RAs) are touted as a means of making the procurement process more effective and efficient, but as is often the case with information technology (IT), there can be risks that managers need to be aware of and mitigate in order to realize the benefits. Using the Delphi methodology followed by semistructured interviews, we identify buyer and supplier perspectives on risk factors associated with RAs and the controls that can address key risk factors. We find that the risk factors map to (1) auction process governance, (2) organizational contingency, (3) buyer–supplier relationship, and (4) agency and transaction cost. Drawing on the findings, we advance an RA risk-control integrative model and formulate corresponding propositions (1) comparing buyers’ and suppliers’ perspectives on risks associated with RA use and (2) identifying controls to mitigate the risks. Our research contributes to theory by (1) surfacing that RAs introduce novel risks and that buyers and suppliers can have either similar or remarkably different views regarding particular risks, (2) showing how both buyers and suppliers can create information asymmetry and act opportunistically, and (3) uncovering the role of input controls, a type of control that has not received much attention in the literature on controls for IT initiatives, as an effective means of addressing most of the key risk factors. For practitioners, our study provides guidance about a wide range of risk factors that both parties could face when using RAs, the adverse consequences of these risk factors, and the controls that can be established to mitigate the key risk factors.