The Complementary Effects of E-Markets on Existing Supplier-Buyer Relationships in a Supply Chain

E-markets have been established in many industries as a sourcing option for buyers. The existing literature focuses on the substitutional effect of e-markets on the traditional supply chain, yet in many situations, e-markets are used by buyers as a benchmarking tool in negotiations with traditional suppliers. This paper examines the role of e-markets in price negotiations and relationship-specific investments. We find that e-markets can be an effective tool to stimulate the traditional supplier's relationship-specific investments, lower the procurement prices, and improve the buyer's profitability and the supply-chain efficiency. Therefore, e-markets can complement rather than substitute for the traditional relationship-based supply chain. When there is quality uncertainty in the e-market offering, two effects of quality uncertainty on e-market adoption are identified. Better quality on average will increase e-market adoption, but surprisingly, increasing quality dispersion of e-markets will also help. Therefore, e-markets should strive to enlist suppliers with better quality products, but do not need to worry too much about the quality dispersion. Having better price transparency will also help in attracting more business from buyers.