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250 Pavlou<br />
taken advantage of from the other firm (Anderson and Weitz, 1989) and improves<br />
favorable impressions for the other firm (Anderson and Narus, 1990). Since signals<br />
and incentives were shown to build trust and reduce fears of moral hazard and<br />
adverse selection, trust should also reduce perceived risks. Consequently, trust in<br />
a firm’s credibility should diminish risk perceptions, predicting a negative relationship<br />
between impersonal trust and perceived risk.<br />
Anticipated Continuity<br />
Anticipated continuity is defined as the perception of a firm’s expectation of<br />
future transactions in a B2B exchange. There is significant evidence to suggest a<br />
strong association between trust and a propensity to continue a relationship<br />
(Morgan and Hunt, 1994). According to Ganesan (1994) trust is a necessary<br />
ingredient for long-term orientation because it shifts the focus to future conditions.<br />
Similarly, Morgan and Hunt found a negative relationship between trust and<br />
propensity to leave, and also Anderson and Weitz (1989) showed that trust is key<br />
to maintaining continuity in buyer-supplier relationships. Therefore, trust should be<br />
associated with a firm’s intention to continue participating in a B2B exchange. Firms<br />
participating in impersonal B2B exchanges usually make decisions based on<br />
objective, calculative evidence (credibility), rather than subjective evaluations<br />
(benevolence) since familiarity trust is rarely present. Nevertheless, anticipated<br />
continuity should be affected by trust in a firm’s credibility, predict a positive<br />
relationship between impersonal trust and anticipated continuity.<br />
Pricing<br />
A major reason for the existence of different prices is the need to compensate<br />
some firms for reducing agency risks and transactions costs (Rao and Monroe,<br />
1996). Therefore, in an efficient or dynamic pricing mechanism, firms need to<br />
reward reputable firms with better prices to assure safe transactions, since<br />
reputable firms are more likely to reduce transaction and agency costs. Similarly,<br />
in B2B exchanges, trustworthy firms are likely to reduce such costs and receive<br />
more favorable pricing. This phenomenon could be explained by the notion of<br />
returns to reputation (Shapiro, 1983), where reputable agents tend to receive more<br />
favorable terms. On the contrary, organizations tend to mandate compensation for<br />
the risk they are exposed to when they transact with less reputable firms.<br />
Consequently, differences in trust may cause different prices given a dynamic<br />
pricing scheme. Pavlou and Ba (2000) empirically showed that differences in trust<br />
perceptions affect price premiums and discounts in eCommerce auctions. Similarly,<br />
in B2B exchanges with dynamic pricing schemes, impersonal trust is viewed as a<br />
risk-reduction mechanism, allowing trustworthy firms to obtain more favorable<br />
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