Business relationships in internet‐based electronic markets: the role of goodwill trust and transaction costs

Abstract. Transaction costs and goodwill trust, which differentiate between transactional and collaborative relationships, were found in existing research to play a significant role in the way organizations use internet technologies to manage their relationships with customers and suppliers within electronic markets (EM). However, a thorough investigation of role that the two dimensions play together in shaping the use of EM is lacking from the mainstream literature. This research addresses transaction costs and goodwill trust together to clarify the transformations that internet use has brought on the nature of interorganizational relationships that develop between EM players. The research finds the use of EM in collaborative relationships is governed by trade‐offs between different outcomes that different EM functionalities have on organizational objectives. Organizations assess these trade‐offs, and select those functionalities that best serve to achieve their collaborative relational objectives. In contrast, no trade‐offs are find in the transactional model, as the use of EM here is driven principally by transaction cost reductions.