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A Theory of Size and Product Diversity of Marketplaces with Application to the Trade Show Arena

Author

Listed:
  • Ani Dasgupta

    (FTS Electronic Marketplace)

  • Gary L. Lilien

    (Pennsylvania State University)

  • Jianan Wu

    (Tulane University)

Abstract

Markets involve the exchange of information and products between buyers and sellers in marketplaces created by market organizers. This paper develops a theory to explain the differences in the size (number of participants) and diversity (range of products displayed) across these marketplaces. We assume that successful transactions require information transmission between parties calling for investment in time/effort. Two key factors affect this process of information interchange: diminishing marginal returns to effort encouraging diversification and congestion cost resulting from participant overload. We study a sequential model of interaction between buyers, sellers and marketplace organizers. Organizers choose the number and nature of marketplaces to organize, and set entry fees for them while buyers and sellers make participation and effort allocation decisions. We show that participants' breadth of product interest, their buying and selling intensities (i.e. how frequently they are likely to engage in future product transactions) as well as the technological innovativeness of the industry have important influences on the size and range of product diversity in the marketplace. We apply this model to the industrial trade show arena to explain differences in trade show types (horizontal with broad product focus vs. vertical with narrow product focus) across industries. Empirical tests of several propositions derived from our model provide an encouraging degree of support for our theory. Our analysis identifies several industries that appear to be underserved by one type of show or the other, suggesting possible future opportunities for organizers.

Suggested Citation

  • Ani Dasgupta & Gary L. Lilien & Jianan Wu, 2000. "A Theory of Size and Product Diversity of Marketplaces with Application to the Trade Show Arena," Econometric Society World Congress 2000 Contributed Papers 0323, Econometric Society.
    • Handle: RePEc:ecm:wc2000:0323
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    References listed on IDEAS

    as
    1. Beath,John & Katsoulacos,Yannis, 1991. "The Economic Theory of Product Differentiation," Cambridge Books, Cambridge University Press, number 9780521335263, August.
    2. F. E. Balderston, 1958. "Communication Networks in Intermediate Markets," Management Science, INFORMS, vol. 4(2), pages 154-171, January.
    3. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
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