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

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Author Info

  • Eric Overby

    ()
    (College of Management, Georgia Institute of Technology, Atlanta, Georgia 30308)

  • Sandy Jap

    ()
    (Goizueta Business School, Emory University, Atlanta, Georgia 30322)

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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.

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    File URL: http://dx.doi.org/10.1287/mnsc.1090.0998
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    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 55 (2009)
    Issue (Month): 6 (June)
    Pages: 940-957

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    Handle: RePEc:inm:ormnsc:v:55:y:2009:i:6:p:940-957

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    Related research

    Keywords: physical markets; electronic markets; market channels; business-to-business auctions; quality uncertainty; adverse selection; market design; transaction costs; change over time; wholesale automotive;

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    Cited by:
    1. Tadelis, Steve & Zettelmeyer, Florian, 2009. "The Effect of Information on Auction Outcomes: A Large Scale Field Experiment," Department of Economics, Working Paper Series qt7t4834h2, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    2. Eric Overby & Chris Forman, 2011. "The Effect of Electronic Commerce on Geographic Trade and Price Variance in a Business-to-Business Market," Working Papers 11-30, NET Institute.
    3. Rach, Sabine & Tschöpel, Michael, 2011. "Handelsplattformen im Internet: Eine Literaturstudie zur empirischen Evidenz," Arbeitspapiere 112, Westfälsche Wilhelms-Universität Münster (WWU), Institut für Genossenschaftswesen.

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