Goal Orientation and Preparation Process in Online Reverse Auctions: A Comparative Investigation Taking a Transaction Cost Economics Lens

While online reverse auctions (ORAs) have become a popular tool to conduct business-to-business procurement, academic research and practical guidance are still limited in delineating salient differences to offline procurement, specifically as these pertain to the corporate buyer’s goal orientation and preparation process preceding the negotiations. This article focuses on these fundamental dimensions characterizing the strategic sourcing approach, and contrasts their pursuit in ORAs and offline procurement. We consider a multi-item request for quotation (RFQ) and investigate the dimensions of price competitiveness and risk reduction as part of a buyer’s goal orientation, and the aspects of information search and extent of analysis as part of the buyer’s preparation process. Drawing on tenets from transaction cost economics, complemented with the literature in industrial buyer behavior, we theorize that the goal of price competitiveness is pursued to a greater degree in ORAs, whereas the goal of risk reduction is pursued to a greater degree in offline procurement. Furthermore, we suggest that both information search and extent of analysis are greater in ORAs than in offline procurement. These contentions are tested with data collected from 825 procurement professionals. Various robustness checks and exploratory extensions taking into account contingency factors are conducted. Our primary contributions lie in the provision of a theoretically grounded framework contrasting ORAs to offline procurement along the dimensions of a buyer’s goal orientation and preparation process, and the empirical test with a large-scale survey focusing on the unique context of multi-item RFQs. Insights for academic theory and managerial practice are discussed.