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Psychological Contract Violation in Online Marketplaces: Antecedents, Consequences, and Moderating Role

Anderson Graduate School of Management, University of California, Riverside, 900 University Avenue, Anderson Hall 010, Riverside, California 91251
Management Department, LeBow College of Business, Drexel University, 101 North 33rd Street, Academic Building, Philadelphia, Pennsylvania 19104-2875
paul.pavlou{at}ucr.edu
gefend{at}drexel.edu

This study examines the nature and role of Psychological Contract Violation (PCV) in online marketplaces, a critical factor that has been largely overlooked by previous research. Applied to buyer-seller relationships, PCV is defined as a buyer’s perception of having being treated wrongly regarding the terms of an exchange agreement with an individual seller. PCV with individual sellers is proposed as a formative first-order construct driven by the occurrence of fraud, product misrepresentation, contract default, delivery delay, and failure to follow product guarantees and payment policies. PCV with an individual seller is proposed to prompt a generalized perception of PCV with the entire community of sellers in a marketplace.

PCV with the community of sellers is hypothesized to negatively affect buyer transaction behavior in a marketplace by directly impacting transaction intentions, price premiums, trust, perceived risk, and the perceived effectiveness of institutional structures. PCV is also hypothesized to act as a moderator, transforming the buyers’ initial trust-based mindset to one more centered on perceived risk. Finally, PCV is hypothesized to attenuate the positive impact of trust on transaction intentions, while reinforcing the negative impact of perceived risk on transaction intentions. It is also proposed to attenuate the impact of the perceived effectiveness of institutional structures on trust, while strengthening its negative effect on perceived risk. As a means of preventing PCV, the buyers’ positive experience and the sellers’ favorable past performance are hypothesized to make PCV with the community of sellers less likely.

A combination of primary and secondary longitudinal data from 404 buyers in eBay’s and Amazon’s online auctions support the proposed hypotheses, validating PCV as a central element of buyer-seller relationships in online marketplaces. Interestingly, ex post facto results show that buyers with higher perceptions of PCV with the community of sellers are less likely to experience PCV with an individual seller in the future.

Implications for buyer-seller relationships in online marketplaces and the PCV literature are discussed. Also discussed is how the increasing number of buyers who experience PCV in online marketplaces extends the literature that has been largely developed based on buyers who had not experienced PCV.

Key Words: Psychological Contract Violation; trust; risk; online auction marketplaces; institutional structures
History: This paper was received on December 2, 2004.

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