Designing Internet-Based Selling Mechanisms: Multichannel Market Transparency Strategy

6 Pages Posted: 27 Feb 2006

See all articles by Nelson F. Granados

Nelson F. Granados

Pepperdine University - Graziadio School of Business

Alok Gupta

University of Minnesota - Twin Cities - Carlson School of Management

Robert Kauffman

University of Minnesota - Twin Cities - Carlson School of Management

Date Written: October 17, 2005

Abstract

The Internet has transformed the nature of business-to-consumer transaction-making practices in many industries. Sellers now attract customers with innovative Internet-based selling mechanisms that can reveal or conceal market information. We define market transparency as a design dimension for Internet-based selling that involves firm choices about the level of availability and accessibility of information about products and prices. Firms can influence market transparency either by designing and implementing their own Internet-based selling mechanism, or by offering their products through an existing electronic market. We develop an economic model of a monopolist that price discriminates across distribution channels based on their market transparency levels. The model provides normative guidelines for firms to set transparency levels and prices across distribution channels in order to maximize profits. We empirically evaluate airline pricing and market transparency to show the applicability of these guidelines. The evidence suggests that relative prices and transparency levels across the Internet and traditional air travel channels are sub-optimal.

Keywords: Air travel industry, Internet-based selling, market transparency, mechanism design, pricing

Suggested Citation

Granados, Nelson F. and Gupta, Alok and Kauffman, Robert, Designing Internet-Based Selling Mechanisms: Multichannel Market Transparency Strategy (October 17, 2005). 15th Annual Workshop on Information Technolgies & Systems (WITS) Paper, Available at SSRN: https://ssrn.com/abstract=886318 or http://dx.doi.org/10.2139/ssrn.886318

Nelson F. Granados (Contact Author)

Pepperdine University - Graziadio School of Business ( email )

24255 Pacific Coast Highway
Malibu, CA 90263
United States

Alok Gupta

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

Robert Kauffman

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States
612-624-8562 (Phone)
612-626-1316 (Fax)

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