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Ho Geun Lee Do Electronic Marketplaces Lower the Price of Goods? E lectronic marketplaces have become increasingly popular alternatives to traditional forms of commerce [8, 9]. This increase in popularity has led many to predict that one effect will be to lower the market price of goods. This reduced price hypothesis was proposed by Bakos in his seminal article on electronic marketplaces [2]. Buyers in market-intermediated transactions have to bear search costs to obtain information about the prices and product offerings of sellers. High search costs of buyers enable sellers to maintain prices substantially above their marginal costs and result in allocational inefficiencies in market transactions. Electronic market systems can reduce the search costs that buyers must incur to acquire information about seller prices and product offerings, thus enabling buyers to locate suppliers that better match their needs. The lowered search costs allow buyers to look at more product offerings and make it difficult for sellers to sustain high prices. The reduced price hypothesis predicts that buyers will enjoy lower product prices as a result of the increased competition among sellers in electronic marketplaces. An industry case study is presented in this article to demonstrate that the prices
Communications of the ACM – Association for Computing Machinery
Published: Jan 1, 1998
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