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Search and Collusion in Electronic Markets

Author

Listed:
  • Colin Campbell

    () (Department of Economics, Rutgers University, 75 Hamilton Street, New Brunswick, New Jersey 08901)

  • Gautam Ray

    () (Department of Management Science and Information Systems, Graduate School of Business, The University of Texas at Austin, Austin, Texas 78712)

  • Waleed A. Muhanna

    () (Department of Accounting and Management Information Systems, Fisher College of Business, Ohio State University, 2100 Neil Avenue, Columbus, Ohio 43210)

Abstract

We examine the impact of reduced search costs on prices of commodity products in electronic marketplaces. Conventionally, reduced consumer search costs may be expected to engender stronger price competition between firms, resulting in lower prices and improved consumer welfare. This notion was formalized in Stahl (1989, "Oligopolistic pricing with sequential consumer search," American Economic Review, Vol. 79, No. 4, pp. 700--712) in a model of static firm competition. In this paper, we show that these standard welfare conclusions may be neutralized or reversed in a dynamic environment. We focus on self-enforcing collusion by firms and characterize the conditions under which collusive equilibria exist. We show that less costly consumer search can facilitate firms' abilities to collude, resulting in higher prices and reduced consumer welfare, even with imperfect or no monitoring by sellers of each other's prices. If the same technology that eases consumer search also allows firms to monitor each other's prices more easily, then firms can more easily detect cheating on a collusive price arrangement, allowing an even greater scope for collusion. This raises antitrust concerns with respect to the electronic marketplace and suggests that at least some of the anticipated competitive gains from electronic market systems may be difficult to realize.

Suggested Citation

  • Colin Campbell & Gautam Ray & Waleed A. Muhanna, 2005. "Search and Collusion in Electronic Markets," Management Science, INFORMS, vol. 51(3), pages 497-507, March.
  • Handle: RePEc:inm:ormnsc:v:51:y:2005:i:3:p:497-507
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    File URL: http://dx.doi.org/10.1287/mnsc.1040.0327
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Itai Ater & Oren Rigbi, 2018. "The Effects of Mandatory Disclosure of Supermarket Prices," CESifo Working Paper Series 6942, CESifo Group Munich.
    2. Joseph E. Harrington Jr. & Andrzej Skrzypacz, 2007. "Collusion under monitoring of sales," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 314-331, June.
    3. Radkevitch, U.L. & van Heck, H.W.G.M. & Koppius, O.R., 2006. "Buyer Commitment and Opportunism in the Online Market for IT Services," ERIM Report Series Research in Management ERS-2006-046-LIS, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    4. repec:spr:infosf:v:10:y:2008:i:5:d:10.1007_s10796-008-9115-2 is not listed on IDEAS
    5. repec:eee:joinma:v:28:y:2014:i:1:p:68-85 is not listed on IDEAS
    6. G. Anandalingam & Robert W. Day & S. Raghavan, 2005. "The Landscape of Electronic Market Design," Management Science, INFORMS, vol. 51(3), pages 316-327, March.
    7. Luke Garrod & Matthew Olczak, 2017. "Collusion Under Imperfect Monitoring with Asymmetric Firms," Journal of Industrial Economics, Wiley Blackwell, vol. 65(3), pages 654-682, September.
    8. Robert J. Kauffman & Charles A. Wood, 2007. "Follow the leader: price change timing in Internet-based selling," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(7), pages 679-700.
    9. Jason Kuruzovich & Siva Viswanathan & Ritu Agarwal, 2010. "Seller Search and Market Outcomes in Online Auctions," Management Science, INFORMS, vol. 56(10), pages 1702-1717, October.
    10. Kasing Man & Junbo Wang & Chunchi Wu, 2013. "Price Discovery in the U.S. Treasury Market: Automation vs. Intermediation," Management Science, INFORMS, vol. 59(3), pages 695-714, September.
    11. Rach, Sabine & Tschöpel, Michael, 2011. "Handelsplattformen im Internet: Eine Literaturstudie zur empirischen Evidenz," Arbeitspapiere 112, University of Münster, Institute for Cooperatives.
    12. Kevin Yili Hong & Alex Chong Wang & Paul A. Pavlou, 2013. "How does Bid Visibility Matter in Buyer-Determined Auctions? Comparing Open and Sealed Bid Auctions in Online Labor Markets," Working Papers 13-05, NET Institute.

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