Do electronic marketplaces lower the price of goods?

Reviewer: S. Srinivasan

Lee discusses the success of an electronic auction network (AUCNET) in Japan. The paper contains an interesting analysis of factors that have favored the sale of used automobiles to wholesalers in Japan. The case study presented here shows that the price of goods traded through electronic means can be higher than the traditional market price. The paper presents various statistical charts to show that consumers are willing to pay a higher price for a product that has gone through a strict evaluation system before being put up for sale. The results and reasoning presented in this paper challenge the reduced-price hypothesis that many have come to accept about goods sold through the electronic marketplace. The author points out that the used car market has benefited immensely from AUCNET, which was started in 1986. The quality of cars this market attracts has risen significantly, and since the number of potential buyers is increased manyfold, the sellers tend to set a price that is nearly double the price in the traditional market. One major advantage for buyers is that they need not travel to numerous auction sites, nor do they have to wait for the kind of car they are interested in to be put up for auction. A plausible explanation for buyers' willingness to pay more is that their search cost is minimized. Also, cars are delivered directly to the buyers by AUCNET, eliminating the cost of an intermediary .