The appropriateness of electronic reverse auctions – an explanation from the incomplete contract theory and the resource dependence theory

Despite the growing importance of electronic reversed auctions (ERAs) few empirical studies have explored the appropriateness of ERA usage. Most commonly, transaction cost theory has been used for these ERA-studies, relying on arguments that consider asset specificity as the primary explanation for organizational boundaries. We seek a more thorough explanation for perceived Electronic Reverse auctions (ERA) appropriateness, using multiple theoretical perspectives. This study includes insights and variables from the incomplete contract theory and the resource dependence theory. A conceptual model for ERA appropriateness was developed from the buyer perspective. This model was empirically validated using a survey of 176 purchasing professionals. The findings suggest a positive impact of buyer power on ERA appropriateness, while total interdependence does not appear to affect ERA appropriateness. The results further indicate that asset specificity stimulates ERA usage. ERA-minded purchasers consider ERAs as a tool for exploiting buyer power and for imposing relationship investments on suppliers. At the same time, variables related to collaboration do not appear to be important for ERA appropriateness from the perspective of the buyer. Suppliers are required to make relation-specific investments, but are not valued for their relational efforts. The novelty of this article Scholars have taken several approaches to investigate and to explain company’s sourcing decisions that include ERA use. We address an important gap in the literature by using the incomplete contract theory in combination with the resource dependence theory to provide a better understanding of buyers’ perceived ERA appropriateness.