Open vs. Proprietary Systems in B2b E-procurement: a Risk-adjusted Transaction Cost Perspective

This article presents an economic model of a monopoly retailer that enables the study of incentives for business-to-business (B2B) e-procurement technology investments that permit inventory coordination and improved operational control. We focus on the information technology (IT) adoption behavior of firms in the presence of agency costs and information uncertainty. We distinguish among three kinds of B2B eprocurement technology platforms that can be selected: traditional interorganizational systems (IOSs), open B2B platforms associated with electronic markets on the Internet, and hybrid solutions. We find that larger firms tend to adopt costlier, but rely upon more certain procurement technologies, such as proprietary EDI. Smaller firms tend to adopt less costly procurement technologies that entail greater supply uncertainties, such as open B2B procurement platforms. _____________________________________________________________________________________