Electronic and Physical Market Channels: A Multiyear Investigation in a Market for Products of Uncertain Quality

  • Overby E
  • Jap S
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Abstract

Many markets that have traditionally relied on collocation of buyers, sellers, and products have introduced electronic channels. Although these electronic channels may provide benefits to buyers and sellers by lowering the transaction costs of participating in the market, there are trade-offs related to quality uncertainty and increased risk that may limit the adoption of the electronic channels. As a result, buyers and sellers use physical channels for some transactions and electronic channels for others. These usage patterns may evolve over time, particularly when the electronic channels are new. We examine buyer and seller use of electronic and physical channels in a market for products of uncertain quality (used vehicles) over a 2.5-year period. Results indicate that transactions involving low quality uncertainty and relatively rare products occurred in the electronic channels, whereas transactions involving high quality uncertainty and relatively plentiful products occurred in the physical channels. These patterns became clearer over time as buyers and sellers gained experience with the electronic channels. The electronic channels led to discounts for products of high quality uncertainty, but not for those of low quality uncertainty. ABSTRACT FROM AUTHOR Copyright of Management Science is the property of INFORMS: Institute for Operations Research and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Author-supplied keywords

  • 2006
  • 2009
  • accepted january 6
  • adverse selection
  • business-to-business auctions
  • by barrie r
  • change over time
  • electronic markets
  • history
  • information systems
  • market channels
  • market design
  • nault
  • physical markets
  • physical markets,electronic markets,market channel
  • quality
  • received january 26
  • transaction costs
  • uncertainty
  • wholesale automotive

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Authors

  • E. Overby

  • S. Jap

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