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Impersonal Trust in B2B Electronic Commerce: A Process View 249 potential short-term benefits. Hence, the calculative process can be invoked by monitoring, which is proposed to be associated with impersonal trust. Legal Bonds Written contracts are also proposed as a mechanism to reduce opportunistic behavior and moral hazard. However, contracts are only partial safeguards against opportunism since they are almost always incomplete due to unforeseen circumstances, since firms are considered boundedly rational and cannot foresee all possible states of nature (Williamson, 1985). Nevertheless, impersonal trust based on legal bonds can be built on the basis of the calculative process since it is rational to cooperate given a legal contract that increases the costs of opportunism. Therefore, legal bonds provide protection and can promote trust in a firm’s credibility. Consequences of Impersonal Trust Satisfaction According to Anderson and Narus (1990), satisfaction is conceptualized as a very important consequence of exchange relationships, showing that satisfaction is an outcome of trust-based relationships. Mutual trust indicates equity in the exchange and promotes satisfaction. Moreover, trust enhances channel member satisfaction by reducing conflict (Anderson and Narus, 1990; Geyskens et al., 1998). In summary, satisfaction represents an important outcome of business exchange relations and a global evaluation of fulfillment exchanges relationships (Dwyer et al., 1987), in which both dimensions of trust should contribute. Following Ganesan (1994), there should be a positive relationship between satisfaction and impersonal trust. Perceived Risk Most buyer-supplier relationships are characterized by information asymmetry since one firm usually possesses uneven information regarding the transaction compared to the other firm (Mishra et al., 1998). The general problem faced by organizations is the inability to foresee and control the actions of the other firm, leading to delegation of some authority to the other party. This problem creates a double-sided agency relationship between the buyer and the supplier (Jensen and Meckling, 1976). According to Shapiro (1987), agency relationships are present in all types of social relationships from simply familiarity interactions to complex forms of a firm. Although risk is inevitable in every transaction, trust reduces the expectations of opportunistic behavior (Sako and Helper, 1998) and risk perceptions (Ganesan, 1994). Trust has been shown to reduce the perceived risk of being Copyright © 2003, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
250 Pavlou taken advantage of from the other firm (Anderson and Weitz, 1989) and improves favorable impressions for the other firm (Anderson and Narus, 1990). Since signals and incentives were shown to build trust and reduce fears of moral hazard and adverse selection, trust should also reduce perceived risks. Consequently, trust in a firm’s credibility should diminish risk perceptions, predicting a negative relationship between impersonal trust and perceived risk. Anticipated Continuity Anticipated continuity is defined as the perception of a firm’s expectation of future transactions in a B2B exchange. There is significant evidence to suggest a strong association between trust and a propensity to continue a relationship (Morgan and Hunt, 1994). According to Ganesan (1994) trust is a necessary ingredient for long-term orientation because it shifts the focus to future conditions. Similarly, Morgan and Hunt found a negative relationship between trust and propensity to leave, and also Anderson and Weitz (1989) showed that trust is key to maintaining continuity in buyer-supplier relationships. Therefore, trust should be associated with a firm’s intention to continue participating in a B2B exchange. Firms participating in impersonal B2B exchanges usually make decisions based on objective, calculative evidence (credibility), rather than subjective evaluations (benevolence) since familiarity trust is rarely present. Nevertheless, anticipated continuity should be affected by trust in a firm’s credibility, predict a positive relationship between impersonal trust and anticipated continuity. Pricing A major reason for the existence of different prices is the need to compensate some firms for reducing agency risks and transactions costs (Rao and Monroe, 1996). Therefore, in an efficient or dynamic pricing mechanism, firms need to reward reputable firms with better prices to assure safe transactions, since reputable firms are more likely to reduce transaction and agency costs. Similarly, in B2B exchanges, trustworthy firms are likely to reduce such costs and receive more favorable pricing. This phenomenon could be explained by the notion of returns to reputation (Shapiro, 1983), where reputable agents tend to receive more favorable terms. On the contrary, organizations tend to mandate compensation for the risk they are exposed to when they transact with less reputable firms. Consequently, differences in trust may cause different prices given a dynamic pricing scheme. Pavlou and Ba (2000) empirically showed that differences in trust perceptions affect price premiums and discounts in eCommerce auctions. Similarly, in B2B exchanges with dynamic pricing schemes, impersonal trust is viewed as a risk-reduction mechanism, allowing trustworthy firms to obtain more favorable Copyright © 2003, Idea Group Inc. Copying or distributing in print or electronic forms without written permission of Idea Group Inc. is prohibited.
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Acquisition Editor: Mehdi Khosrow-P
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The Economic and Social Impacts of
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vi Preface E-commerce is not new, t
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