Non - Contractibility and Asset Specificity in Reverse Auctions : “ Move to the Middle ” or “ Efficient Markets ” ?

IT-enabled exchange in electronic markets has significant implications for buyer-supplier relationships. This paper builds on transaction cost and routine based perspectives in analyzing buyers’ decisions to use reverse auctions, which are an emerging IT-enabled exchange mechanism. The study argues that buyers are less likely to adopt reverse auctions for supplier relationships with high degrees of non-contractibility. We operationalize non-contractibility in terms of six aspects: quality attributes, supplier innovativeness, information sharing, responsiveness, trust, and flexibility. The results show that non-contractibility helps explain the impact of IT on firm boundaries. This field study provides one of the first large sample tests of the widely cited ‘move to market’ and ‘move to middle’ hypotheses in the information systems literature.