Do Digital Platforms Improve the Performance of Nonbinding Contracts? Evidence From the Amazon Freight Platform
Authors: Babakan, Ali S.; Li, He; Kettinger, William J.
Journal: MIS Quarterly (2025)
<jats:p>This research examines how digital platforms influence the performance of nonbinding contracts. Businesses in many industries with high uncertainty, such as trucking freight and construction, simultaneously use nonbinding contracts, which impose no legal sanctions for refusals, and spot markets, which facilitate real-time, flexible transactions with market-determined prices. Understanding the conditions under which nonbinding contracts perform is a major concern in these industries. Leveraging the entry of the Amazon Freight platform in the trucking freight industry, we demonstrate that adding a digital platform-enabled spot marketplace improves the performance of nonbinding contracts. We identified several mechanisms driving this effect: (1) expanding carriers’ transportation capacity, (2) lowering spot market prices, and (3) reducing shippers’ reliance on nonbinding contracts for shorter-haul truckloads. Moreover, the digital platform’s impact on enhancing nonbinding contract performance is particularly pronounced in markets with volatile demand and shorter hauls. This research contributes to understanding the impacts of digital platforms in highly uncertain industries t…