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248 Pavlou
mechanism, firms are informed about other firm’s past behavior and they are able
to choose them. Hence, the probability of finding partners depends on their past
behavior. On the basis of this dependency, only cooperative conduct pays in the
long run; hence, rational firms tend to act trustworthy. This dependency engenders
trust by triggering the calculative process, following a sober assessment that a firm’s
benefits of cheating are greater than the costs of lost transactions.
Feedback may also be regarded as a surrogate (signal) of good reputation
(Pavlou and Ba, 2000), which is an important antecedent of trust in buyer-seller
relationships (Anderson and Weitz, 1989). Therefore, reputable firms would have
greater incentives to cooperate since they have a better feedback to protect than
non-reputable firms do, and they are more likely to act ethically (Telser, 1980).
Following the same argument, firms would eminently value long and unblemished
history, since more organizations are more unlikely to destroy a good name to
exploit a single transaction. Therefore, feedback triggers the transference process
of engendering trust, where firms infer trustworthiness through feedback from other
firms participating in a B2B exchange. Feedback mechanisms provide both signals
of past experience, and also incentives for cooperation. Consequently, feedback
is associated with impersonal trust by triggering both the calculative and transference
processes.
Monitoring
In B2B exchanges, monitoring may have two aspects. First, a third-party
authority monitors all interfirm transactions and assures that everything is performed
in accordance with the agreed terms. In case of a problem, a neutral authority
attempts to solve the issue to the satisfaction of both firms, or in accordance with
the prearranged agreement. Second, a third-party authority can assure that the
quality of all products exchanged is in agreement with the preapproved specifications.
For example, independent contractors offer quality-assurance services to the
B2B exchange of Chemconnect.com (www.chemconnect.com). Therefore, agency
risks of moral hazard are minimized by monitoring that discourages opportunistic
behavior. B2B exchanges may continually monitor the trading activity, convey
sanctions to inappropriate trading behavior and punish any wrongdoing. Thirdparty
monitoring provides the incentives for firms to engage in cooperative and
honest practices. Therefore, the calculative process suggests that trust can be built
when a B2B exchange monitors the transaction if the costs of opportunistic behavior
will be higher than the benefits from cheating. Given proper government, monitoring
provides the incentives for firms to engage in cooperative practices since simple
calculation would suggest that the costs of opportunistic behavior would exceed
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