ELECTRONIC MARKETS AND INTELLIGENT AGENTS : AN EXPERIMENTAL STUDY OF THE ECONOMICS OF ELECTRONIC COMMERCE

Abstract

This research focuses on WWW-based, business-to-consumer retail electronic markets and comparison shopping intelligent agents. Electronic retailing and shopping started on the WWW predominantly in the form of online storefronts. Increasingly, we are seeing more online specialised retailers, shopping malls and megastores. However, the economic dynamics of conducting electronic commerce in business-to-consumer retail electronic markets have not been studied previously. Comparison shopping agents automate the search for price and other product information across multiple online merchants simultaneously. The use of such agents has been touted to reduce buyers' search costs and help enable an economically efficient market. However, more often than not, the effectiveness of consumer searches for product information depends not only on the buyer's willingness to incur the costs involved, but also on the type of market organisation, type of product and the method of information search. This research applies the principles of experimental economics to study the market­ making functionality of electronic market systems and intelligent agents during the processes of price-discovery and identification of product offerings. By using an experimental theoretical framework, the economic effects of market trading of commodity and differentiated products in single-source electronic storefronts and electronic malls arc studied. We also investigate the economic effects of the utilisation of comparison shopping agents on commodity and differentiated product markets. Results from this study show that the impact of comparison shopping agents is more pronounced in resolving problems of product quality uncertainty on the WWW Specifically, the impact of comparison shopping agents differs across commodity and differentiated product markets. Buyer's percentage of total surplus is higher but seller's percentage of total surplus is lower in differentiated product markets with intelligent agents usage as compared to differentiated product markets with none. In addition, there is evidence that comparison shopping agents improve market trading outcomes in terms of higher market efficiency and lower seller's percentage of total surplus across single-source electronic storefronts. Based on these findings, implications for practitioners are elucidated and areas for future related research are identified.