Costly Bidding in Online Markets for IT Services

Loading...
Thumbnail Image
Penn collection
Operations, Information and Decisions Papers
Degree type
Discipline
Subject
Internet
electronic markets
software contracts
reverse auctions
bidding
E-Commerce
Marketing
Funder
Grant number
License
Copyright date
Distributor
Related resources
Author
Snir, Eli. M
Hitt, Lorin. M
Contributor
Abstract

Internet-enabled markets are becoming viable venues for procurement of professional services. We investigate bidding behavior within the most active area of these early knowledge markets—the market for software development. These markets are important both because they provide an early view of the effectiveness of online service markets and because they have a potentially large impact on how software development services are procured and provided. Using auction theory, we develop a theoretical model that relates market characteristics to bidding and transaction behavior, taking into account costly bidding. We then test our model using data from an active online market for software development services, which yields contracts for 30%–40% of posted projects. In its current format, however, the studied market may induce excessive bidding by vendors. Consistent with our theoretical predictions and those of Carr (2003), higher-value projects attract significantly more bids, with lower average quality. Greater numbers of bids raise the cost to all participants, due to costly bidding and bid evaluation. Perhaps as a consequence, higher-value projects are also much less likely to be awarded.

Advisor
Date Range for Data Collection (Start Date)
Date Range for Data Collection (End Date)
Digital Object Identifier
Series name and number
Publication date
2003-11-01
Volume number
Issue number
Publisher
Publisher DOI
Journal Issue
Comments
Recommended citation
Collection