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Adoption Dynamics in Buyer-Side Exchanges


  • Gabor Fath


  • Miklos Sarvary



The purpose of this paper is to understand buyer/seller adoption dynamics in independent, buyer-side B2B exchanges. In a stylized model, we assume that the main role of the exchange is to reduce search costs for buyers. Buyers and sellers enter or exit the exchange based on the relative economic surplus (loss) they receive inside vs. outside the exchange. We contrast two situations: one where participants' switching cost to join the institution is negligible and another, in which it is significant. In an extension, we also explore the impact of buyer/seller heterogeneity on adoption dynamics. We have three key findings with relevant implications for practice. First, we find that the general view that demand and supply (so-called “liquidity”) either grows or shrinks in the marketplace may not hold. In the presence of switching costs, the exchange can evolve to a stable state with only partial market participation. Second, our results suggest that the exchange is better off subsidizing buyers as opposed to sellers in order to achieve the so-called “critical mass”, beyond which there is full participation. Finally, we find that while in general, “minor” buyers of the industry have more incentive joining the exchange, when the fixed participation fee of the exchange is high, it is “major” buyers who are likely to join first. For sellers, this is not the case: minor sellers are always more keen in participating in a buyer-side exchange. Copyright Kluwer Academic Publishers 2003

Suggested Citation

  • Gabor Fath & Miklos Sarvary, 2003. "Adoption Dynamics in Buyer-Side Exchanges," Quantitative Marketing and Economics (QME), Springer, vol. 1(3), pages 305-335, September.
  • Handle: RePEc:kap:qmktec:v:1:y:2003:i:3:p:305-335
    DOI: 10.1023/B:QMEC.0000003332.67487.2d

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    References listed on IDEAS

    1. Jeffrey M. Perloff & Steven C. Salop, 1985. "Equilibrium with Product Differentiation," Review of Economic Studies, Oxford University Press, vol. 52(1), pages 107-120.
    2. Paul Klemperer, 1995. "Competition when Consumers have Switching Costs: An Overview with Applications to Industrial Organization, Macroeconomics, and International Trade," Review of Economic Studies, Oxford University Press, vol. 62(4), pages 515-539.
    3. Frank M. Bass, 1969. "A New Product Growth for Model Consumer Durables," Management Science, INFORMS, vol. 15(5), pages 215-227, January.
    4. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    5. Sarkar, Mitrabarun & Butler, Brian & Steinfield, Charles, 1998. "Cybermediaries in Electronic Marketspace: Toward Theory Building," Journal of Business Research, Elsevier, vol. 41(3), pages 215-221, March.
    6. J. Yannis Bakos, 1997. "Reducing Buyer Search Costs: Implications for Electronic Marketplaces," Management Science, INFORMS, vol. 43(12), pages 1676-1692, December.
    7. Michael R. Baye & John Morgan, 2001. "Information Gatekeepers on the Internet and the Competitiveness of Homogeneous Product Markets," American Economic Review, American Economic Association, vol. 91(3), pages 454-474, June.
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    Cited by:

    1. repec:spr:binfse:v:60:y:2018:i:2:d:10.1007_s12599-018-0520-x is not listed on IDEAS
    2. Catherine Tucker & Juanjuan Zhang, 2008. "Decomposing the Congestion Effect and the Cross-Platform Effect in Two-Sided Networks: A Field Experiment," Working Papers 08-12, NET Institute, revised Oct 2008.
    3. Shanjun Li & Yiyi Zhou, 2015. "Dynamics of Technology Adoption and Critical Mass: The Case of U.S. Electric Vehicle Market," Working Papers 15-10, NET Institute.

    More about this item


    B2B exchanges; buyer-seller adoption; game theory; commodity markets;

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