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A Strategic Analysis of Electronic Marketplaces

J. Yannis Bakos
MIS Quarterly
Vol. 15, No. 3, Special Issue: [Strategic Use of Information Systems] (Sep., 1991), pp. 295-310
DOI: 10.2307/249641
Stable URL: http://www.jstor.org/stable/249641
Page Count: 16
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
A Strategic Analysis of Electronic Marketplaces
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Abstract

Information systems can serve as intermediaries between the buyers and the sellers in a vertical market, thus creating an "electronic market-place." A major impact of these electronic market systems is that they typically reduce the search costs buyers must pay to obtain information about the prices and product offerings available in the market. Economic theory suggests that this reduction in search costs plays a major role in determining the implications of these systems for market efficiency and competitive behavior. This article draws on economic models of search and examines how prices, seller profits, and buyer welfare are affected by reducing search costs in commodity and differentiated markets. This reduction results in direct efficiency gains from reduced intermediation costs and in indirect but possibly larger gains in allocational efficiency from better-informed buyers. Because electronic market systems generally reduce buyers' search costs, they ultimately increase the efficiency of interorganizational transactions, in the process affecting the market power of buyers and sellers. The economic characteristics of electronic marketplaces, in addition to their ability to reduce search costs, create numerous possibilities for the strategic use of these systems.

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