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

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.

Keywords:

• reputation
• brand loyalty
• online software markets
• transaction costs economics
• business familiarity
• low trust cultures

Additional information

Notes on contributors

David Gefen

About the authors

David Gefen is a professor of MIS at Drexel University, Philadelphia, U.S.A., where he teaches IS Outsourcing, Strategic Management of Information Systems, Database Analysis and Design, and VB.NET programming. David has authored some of the most cited papers in MIS about trust and about gender in the context of IS adoption and management. His research focuses on information systems implementation as well as informatics analyses of transactional data as these apply to the psychological and rational processes involved in the management of many types of information systems. Before becoming an academic, David was a programmer and systems analyst, and then senior manager of a large logistics information system. His research findings have been published in some of the leading journals, including MISQ, ISR, IEEE TEM, JMIS, Omega, and Journal of the JA Association for Information Systems. David is an author of a textbook on Advanced VB.NET Programming Web and Desktop Applications in ADO.NET and ASP.NET in 2004 and a book on the Art of IS Outsourcing in 2011. David is on the Editorial Board of MISQ. Previously he was on the editorial boards of JMIS and DATABASE.

Erran Carmel

Erran Carmel studies various kinds of sourcing in the context of the globalization of technology work. He recently completed his third book about the special issues that time zone separation imposes on global coordination of work. His interest in the topic of this paper – Online Sourcing Markets – has now taken him to research crowdsourcing and the ‘human cloud’. He is a Professor of the Information Technology department, Kogod School of Business at American University in Washington D.C.