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Trust in Procurement Interactions

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  • Fugger, Nicolas
  • Katok, Elena
  • Wambach, Achim

Abstract

We investigate the claim that auctions in procurement are detrimental to the buyer- seller relationship, which is expressed by less trust by the buyer and more oppor- tunistic behavior by the supplier after the sourcing. To do so, we compare exper- imentally a standard auction and a buyer-determined auction. It turns out that buyer-determined auctions result in higher prices but enable cooperation between the buyer and the selected supplier. In the buyer-determined auction it can be optimal for the buyer to choose the larger offer. The standard auctions, on the other hand, yield lower prices but reduce cooperation to a minimum. Interest- ingly the degree of trust reflected by a larger number of trades and efficiency in case of trade are significantly higher in the buyer-determined auction. Theoretical reasoning based on other-regarding preferences helps to organize the results.

Suggested Citation

  • Fugger, Nicolas & Katok, Elena & Wambach, Achim, 2015. "Trust in Procurement Interactions," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112907, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc15:112907
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    References listed on IDEAS

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    Cited by:

    1. Li, Zhipeng & Zhou, Xiaoyu & Huang, Shoujun, 2021. "Managing skill certification in online outsourcing platforms: A perspective of buyer-determined reverse auctions," International Journal of Production Economics, Elsevier, vol. 238(C).
    2. Brosig-Koch, Jeannette & Heinrich, Timo & Sterner, Martin, 2023. "Bilateral communication in procurement auctions," MPRA Paper 117612, University Library of Munich, Germany.
    3. Brosig-Koch, Jeannette & Heinrich, Timo, 2018. "The role of communication content and reputation in the choice of transaction partners," Games and Economic Behavior, Elsevier, vol. 112(C), pages 49-66.
    4. Sander Onderstal & Yang Yang, 2020. "Cheap-talk Communication in Procurement Auctions: Theory and Experiment," Tinbergen Institute Discussion Papers 20-013/VII, Tinbergen Institute.
    5. Leonardo M. Giuffrida & Gabriele Rovigatti, 2022. "Supplier selection and contract enforcement: Evidence from performance bonding," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 31(4), pages 980-1019, November.

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    More about this item

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact

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