TO BID OR NOT TO BID: DRIVERS OF BIDDING BEHAVIOR IN ELECTRONIC REVERSE AUCTIONS

• Author: CRAIG R. CARTER,CYNTHIA KAY STEVENS,STEVIE WATSON,SENGUN YENIYURT
• Published date: 01 January 2011
• Date: 01 January 2011
• DOI: http://doi.org/10.1111/j.1745-493X.2010.03214.x

TO BID OR NOT TO BID: DRIVERS OF BIDDING BEHAVIOR

IN ELECTRONIC REVERSE AUCTIONS

SENGUN YENIYURT, STEVIE WATSON

Rutgers University

CRAIG R. CARTER

University of Nevada

CYNTHIA KAY STEVENS

University of Maryland

Electronic reverse auctions (eRAs) are a popular tool used in sourcing and

business research. However, the complexityof decisions made during this type

of auction is not yet fully understood. The authors use data from a published

laboratory experiment that had examined the impact of eRA auction configu-

ration on buyer price and supplier perceptions of opportunism. In the present

study, the authors analyzed data from the 11,882 time-interval observations

and 2,549 bids submitted by suppliers to explore the factors that affect sup-

pliers’ decisions to submit bids in eRAs. The effects of supplier characteristics,

bidding history and experience, auction configuration, and timing on the

propensity to bid at a specific point in time during the eRA are estimated

utilizing continuous time hazard rate analysis techniques. Our results indicate

that the supplier’s need for cognition and number of prior auction failures,

online auction configuration, and the rank status of a supplier’s bid at a given

point in time all significantly affect the propensity to submit a bid. Also, if

suppliers have previously submitted many bids in the online auction, they tend

to submit more subsequent bids, suggesting an escalation of commitment

dynamic that may underlie the potential for a bidding frenzy.

Keywords: electronic reverse auctions; decision making; behavioral supply management;

hazard rate models

INTRODUCTION

Electronic reverse auctions (e-RAs), also referred to as

online reverse auctions, generate billions of dollars in

business-to-business transactions and are now used by

every major industry (Sehwail, Ingalls and Pratt 2008;

Ganesan, George, Jap, Palmatier and Weitz 2009). The

increasing popularity of e-RAs has resulted in a bur-

geoning of academic research. The literature is particu-

larly rich in examining the feasibility and appropriate

uses of e-RAs (Kaufmann and Carter 2004; Foroughi,

Kocakulah and Williams 2008; Hawkins, Randall, and

Wittmann 2010), beneficial and controversial aspects of

e-RAs in buyer–seller relationships (Beall, Carter, Carter,

Germer, Hendrick, Jap, Kaufmann, Maciejewski, Mon-

czka and Petersen 2003; Pearcy, Giunipero and Wilson

2007; Canie¨ls and van Raaij 2009), and factors that affect

buyers’ information processing and decision-making in

e-RAs (Smeltzer and Carr 2003; Ha¨ubl and Popkowski

Leszczyc 2004; Ding, Eliashberg, Huber and Saini 2005).

Nevertheless, the majority of e-RA research has focused

on the buyer’s perspective while fewer studies have fo-

cused on suppliers’ decision making in e-RAs. For ex-

ample, anecdotal evidence exists regarding phenomena

such as auction bidding frenzy (Jap 2002; Carter,

Kaufmann, Beall, Carter, Hendrick and Petersen 2004),

yet the actual mechanisms that influence the decision to

place an individual bid have not been explored.

The current study addresses an important gap in the

literature by focusing on the factors that affect suppliers’

decision-making in an e-RA. Specifically, the personal

characteristics of the decision maker, bidding history and

experience, auction characteristics and timing are among

the factors believed to have an impact on the propensity

to submit bids in e-RAs. Hypotheses are tested using data

Volume 47, Number 160