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"The Complementary Impacts of e-Markets on Existing Supplier-Buyer Relationships in a Supply Chain"

Mu Xia and Nan Xia


First Author :

Mu Xia
Business Administration
University of Illinois at Urbana-Champaign, College of Business
1206 S. Sixth Street, MC 706
Champaign, IL 61820

Second Author :

Nan Xia
University of Southern California, Marshall School of Business
Los Angeles, CA 90089

Abstract :
E-markets have been established in many industries as a sourcing option for buyers, yet in many situations they are used to complement long-term supplier-buyer relationships rather than replacing them. In this paper, we analyze the complementary role of e-markets when the buyer uses e-markets as an outside option in bargaining with the traditional supplier. The supplier may choose to make a relationship-specific investment to reduce the production cost. Two scenarios are considered: when the quality of e-market o¤ering is the same as the traditional suppliers and when there is e-market quality uncertainty. We find that under a wide range of conditions, the e-market helps to stimulate the suppliers investment and improve the coordination of the existing supply chain. Therefore, the e-market can complement rather than substitute the traditional relationship-based supply chain. In addition, our result shows that while the buyer always benefits from the e-market option even if the search cost in the e-market is taken into account, the supplier is worse off. When there is quality uncertainty in the e-market offering, two effects of quality uncertainty on e-market adoption are identified, along with the implications for e-market providers who wish to improve e-market adoptions. While better quality on average will increase e-market adoption, it is surprising that increasing quality dispersion of e-market will also help.
Keywords :
bargaining, business-to-business e-commerce, E-market, outside option, quality uncertainty, supplier-buyer relationship, supply chain
Manuscript Received : 2006
Manuscript Published : 2006
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