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Effect of technological breakthroughs on electronic markets

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Abstract

Electronic markets have profoundly affected competition and market structures. Many authors have argued that electronic markets can promote competition and increase allocational efficiency, primarily by reducing buyer and seller search costs. However, conventional competitive models do not explain several phenomena we actually observe in electronic markets. Consequently, a variety of researchers have introduced complications to the basic competitive search model, including asymmetric information, branding and product differentiation, network effects, and agency considerations in order to explain e-commerce behavior. However, most previous studies neglect the fact that such characteristics may reflect underlying market evolution processes. Depending upon the evolutionary pattern of a market, the behavior and performance of markets differ. In this paper, we construct a model to examine e-commerce in the framework of dynamic market evolution. Using a system of replicator dynamics, we split a market into two distinct parts and show that the competition within the two segments will follow different, though interrelated evolutionary patterns. We supply the conditions for the existence of a unique global stable equilibrium in this dynamical system. Our model suggests that exogenous increases in online customers triggered by technological breakthrough often play more important roles than price differentials in determining the evolutionary path of a market. By emphasizing the short term disequilibrium along the market evolution path, our study complements the competitive equilibrium view of electronic market.

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Author information

Authors and Affiliations

  1. Department of Economics and Information Systems, University of Alabama in Huntsville, Huntsville, AL, 35899, USA

    Xiaotong Li

  2. College of Administrative Science, University of Alabama in Huntsville, Huntsville, AL, 35899, USA

    Jatinder N. D. Gupta

  3. Department of Economics, Old Dominion University, Norfolk, VA, 23529, USA

    James V. Koch

Authors
  1. Xiaotong Li
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  2. Jatinder N. D. Gupta
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  3. James V. Koch
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Corresponding author

Correspondence to Jatinder N. D. Gupta.

Additional information

Xiaotong Li is an Assistant Professor of MIS at the University of Alabama in Huntsville. His research has appeared in many major journals including Communications of the ACM, Marketing Science, IEEE Transactions and others. His current research interests are in applied game theory and the economics of IT. He has been invited to give research seminars at many major research universities. Dr. Li has been invited to referee research papers for many academic journals including MIS Quarterly, Information Systems Research, Marketing Science, Journal of MIS and Journal of AIS. He recently won the best paper award from IEEE Transaction on Engineering Management.

Jatinder (Jeet) N. D. Gupta is currently Eminent Scholar of Management of Technology, Professor of Management Information Systems, Industrial and Systems Engineering and Engineering Management at the University of Alabama in Huntsville, Huntsville, Alabama. Most recently, he was Professor of Management, Information and Communication Sciences, and Industry and Technology at Ball State University, Muncie, Indiana. He holds a PhD in Industrial Engineering (with specialization in Production Management and Information Systems) from Texas Tech University. Co-author of a textbook in Operations Research, Dr. Gupta serves on the editorial boards of several national and international journals. Recipient of the Outstanding Faculty and Outstanding Researcher awards from Ball State University, he has published numerous papers in such journals as Journal of Management Information Systems, International Journal of Information Management, Operations Research, INFORMS Journal of Computing, Annals of Operations Research, and Mathematics of Operations Research. More recently, he served as a co-editor of several special issues including Design, Building and Evaluation of Intelligent DMSS of theJournal of Decision Systems, the Neural Networks in Business of Computers and Operations Research and books that include the Intelligent Decision Making Support Systems (i-DMSS): Foundations, Applications and Challengepublished by Springer-Verlag and Creating Knowledge-based Healthcare Organizations published by Idea Group Publishing. He is also the coeditor of the book: Managing E-Business published by Heidelberg Press, Heidelberg, Australia. His current research interests include e-Commerce, Supply Chain Management, Information and Decision Technologies, Scheduling, Planning and Control, Organizational Learning and Effectiveness, Systems Education, Knowledge Management, Information Security, and Enterprise Integration. Dr. Gupta has held elected and appointed positions in several academic and professional societies including the Association for Information Systems, Production and Operations Management Society (POMS), the Decision Sciences Institute (DSI), and the Information Resources Management Association (IRMA).

James V. Koch is Board of Visitors Professor of Economics at Old Dominion University. Previously, he served as President of the University of Montana (1986–1990) and Old Dominion University (1990–2001). His recent published research has focused on: (1) the entrepreneurial behavior of college presidents and CEOs; and, (2) applied microeconomics. Dr. Koch has been a consultant to more than 75 corporations, foundations and legal firms.

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Li, X., Gupta, J.N.D. & Koch, J.V. Effect of technological breakthroughs on electronic markets. Electron Commerce Res 6, 389–404 (2006). https://doi.org/10.1007/s10660-006-9075-x

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