WHEN DO FIRMS USE INTERNET-ENABLED REVERSE AUCTIONS ? THE ROLE OF ASSET SPECIFICITY , PRODUCT SPECIALIZATION

IT-enabled exchange in electronic markets has significant implications for buyer-supplier relationships. Building on previous research that emphasizes the role of intangible assets in interorganizational relationships, this study argues that buyers are less likely to use reverse auctions for supplier relationships involving a high degree of non-contractibility, complementing traditional transaction cost economics arguments that focus on the impact of asset specificity and product specialization. We identify and operationalize six dimensions of non-contractibility: quality, supplier technological investments, information exchange, responsiveness, trust, and flexibility. The results show that non-contractible elements of an inter-organizational relationship strongly influence buyers’ use of reverse auctions. This study provides evidence for the importance of supplier investments in noncontractible elements of exchange relationships to affect buyer loyalty in an increasingly competitive economy.