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Uncertain Switching Costs and Purchase Decisions in Electronic Markets

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  • Baichun Xiao
  • Youyi Feng
  • Edward Roche

Abstract

As advances in information technologies (IT) significantly reduce the time and cost of acquiring and processing product information, some buyers that traditionally work with one or few suppliers have switched to the market environment. The rapid growth of e-commerce has led researchers to believe that a uniform shift to the electronic markets is inevitable. This article examines the issue from the perspective of uncertain supplier’s performance, switching costs, and the value of information. We show that the presence of uncertainty and switching costs favors contractual relationships between buyers and suppliers. As IT makes the market more competitive, the marginal value of information diminishes. Meanwhile, the overall effect of IT on uncertainty and switching costs is fairly limited. As a result, buyers facing high uncertain supplier’s performance and switching costs may find working with a small number of suppliers a better choice. Copyright Springer Science + Business Media, Inc. 2005

Suggested Citation

  • Baichun Xiao & Youyi Feng & Edward Roche, 2005. "Uncertain Switching Costs and Purchase Decisions in Electronic Markets," Annals of Operations Research, Springer, vol. 135(1), pages 179-196, March.
    • Handle: RePEc:spr:annopr:v:135:y:2005:i:1:p:179-196:10.1007/s10479-005-6240-x
    DOI: 10.1007/s10479-005-6240-x
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    References listed on IDEAS

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    4. Malone, Thomas W., 1986. "A formal model of organizational structure and its use in predicting effects of information technology," Working papers 1849-86., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    5. Beggs, Alan, 1989. "A Note on Switching Costs and Technology Choice," Journal of Industrial Economics, Wiley Blackwell, vol. 37(4), pages 437-440, June.
    6. Klemperer, Paul D, 1988. "Welfare Effects of Entry into Markets with Switching Costs," Journal of Industrial Economics, Wiley Blackwell, vol. 37(2), pages 159-165, December.
    7. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
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    Cited by:

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    2. Hui Yuan & Wei Xu & Qian Li & Raymond Lau, 2018. "Topic sentiment mining for sales performance prediction in e-commerce," Annals of Operations Research, Springer, vol. 270(1), pages 553-576, November.

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