Why the first provider takes it all: the consequences of a low trust culture on pricing and ratings in online sourcing markets

David Gefen and Erran Carmel

European Journal of Information Systems, 2013, vol. 22, issue 6, 604-618

Abstract: Electronic markets are ruled by price and reputation, and, at least in the case of Online Sourcing Markets (OSM), also by preference for providers the buyer already contracted with. OSM are online markets for software development. Adding Fukuyama's notion of a low trust culture, an argument is advanced why buyers in OSM may give absolute preference to providers with whom they had previous contracts, presenting a special case of neoclassical contracting. Examining all the transactions in one calendar year at a leading OSM supports this proposition. All it took to be given the tender was to be the only bidding provider with at least one successful previous contract with the buyer, rendering pricing and ratings immaterial to bid choice. Only when none of the bidding providers had previous successful projects with the buyer did pricing and rating affect bid choice. The proposition is also consistent with the buyers’ comments about their providers. Implications are discussed about how a low trust culture affects OSM behavior.

Date: 2013
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DOI: 10.1057/ejis.2012.49

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