Does trust still matter in business relationships based on online reverse auctions?

Abstract

The Internet-driven electronic marketplace has been presented as a mean of enhancing collaboration between buyers and suppliers while generating significant advantages for both parties. Nevertheless, the introduction of online reverse auctions (ORA) in the negotiation process has been perceived as a resource that decreases inter-organizational trust, limiting the possibilities of collaboration. Online reverse auctions enable buyers to achieve tremendous financial savings through a considerable decrease in suppliers' margins and profits. Consequently, online reverse auctions are blamed for destroying buyer-supplier trust and creating distrust among suppliers toward buyers. Indeed, there is a widespread perception among suppliers that online reverse auctions are unfair since they only take buyers' interests into consideration, increasing the suppliers' suspicion of buyer opportunism. Suppliers feel that online reverse auctions tend to undermine relationships, and they feel exploited by the process, consequently reducing their level of trust in buyers. This paper focuses on the outcomes of ORA use in the business relationships of one major French retailer and its industrial suppliers. Based on a case study built upon 70 semi-directive interviews, we propose an analysis of the impact of ORA use in business relationships. We show that it is not the technology of ORA itself which is responsible for trust deterioration but the way it is used. Our results suggest three factors that would allow inter-firm trust to be maintained when using ORA: the management of ORA, the integration of qualitative criteria and the eradication of abuses related to ORA use.