0 to Be or Not to B 2 B ?

With the increasing popularity of commercial uses of the Internet, business-to-business (B2B) ecommerce and e-procurement are moving corporate purchasing to the World Wide Web. We identify two types of B2B e-commerce business models. Extranets connect the buyer and its suppliers with a closed network. In contrast, electronic markets create open networks for buyer and supplier interactions. Extensive IS research has studied the benefits and costs of interorganizational information systems (IOS). Recently, we have observed a new trend towards the use of electronic markets as an alternative channel for buyers to search for and exchange supplies with a large supplier base. What are the motivations for buyers to move from extranets to electronic markets? Why is this value-maximizing for the firms? This paper develops an game theoretic economic model of this choice. The results indicate that the buyer’s decision about an e-procurement approach depends on: (1) desired gains from lower search costs and operational costs enabled by an electronic market; (2) the importance of information sharing between its suppliers; (3) the extent of competition present in the supplier market; and (4) the desired levels of contractual payment transfers between buyers and suppliers.