| Abstract: |
Online markets have dramatically decreased costs of search and communication
for buyers. By contrast, costs of evaluating purchasing alternatives have
become critical due to an overwhelming range of available options. When high,
evaluation costs can offset potential gains from transactions and cause
inefficiencies, e.g. by forcing buyers to abandon transactions without
allocating contracts. While most previous studies treat evaluation costs as an
exoge-nous factor, this study considers them endogenous. We identify several
tactics (search, request for proposal preparation, budget announcement, bid
filtering, and negotiation) that buyers at online markets can use to reduce
their evaluation costs and hence influence project allocation. Using data from
nearly 10 thousand transactions at a leading online marketplace for IT
services, we show that buyers who use these tactics are more likely to
allocate their project to a winner than buyers not using these tactics. Buyer
experience also has a positive effect on allocation and, in addition,
moderates the effectiveness of some of the tactics. As experience grows,
budget announcement be-comes more effective in coping with evaluation costs
and increases the likelihood of allocation, while the effectiveness of request
for proposal preparation decreases. Together, these results shed more light on
the buyer side of online reverse auctions, which leads to guidelines for
improving the efficiency of online marketplaces. |