A Game Theoretic Model of E-Marketplace Participation Growth

Journal of Management Information Systems, Vol. 22, No. 1, 2005

Posted: 3 Aug 2006

See all articles by Michael Galbreth

Michael Galbreth

University of Tennessee, Knoxville - Haslam College of Business

Salvatore T. March

Vanderbilt University - Strategy and Business Economics

Gary D. Scudder

Vanderbilt University - Operations Management

Mikhael Shor

University of Connecticut Department of Economics

Abstract

Despite their potential to significantly reduce transaction costs for both buyers and sellers, e-marketplaces have struggled. Recent literature has examined the value propositions of e-marketplaces and proposed conceptual frameworks for their analysis. In this research, we move beyond conceptual analysis by developing a gametheoretic model of return-on-investment (ROI)-driven e-marketplace participation growth. This model provides insights into expected e-marketplace growth and participation, and can be used to determine both the viability and expected long-run size of a given e-marketplace. Our results indicate that the pricing policy of the e-marketplace intermediary can affect the rate at which participation grows and, therefore, sentiment about its prospects. We focus on e-marketplaces that add value to buyers and sellers by increasing the efficiency of administrative tasks but also simultaneously add value to buyers and reduce value to sellers by lowering prices for goods purchased. Value to participants in these e-marketplaces is determined by the volume of transactions that can be conducted using the e-marketplace, resulting in a two-sided network effect—buyers reacting to sellers and sellers reacting to buyers. The game-theoretic model identifies an e-marketplace equilibrium at which participation growth is predicted to stop.

Keywords: business-to-business e-commerce, e-marketplace, game theory, network effect

Suggested Citation

Galbreth, Michael and March, Salvatore T. and Scudder, Gary D. and Shor, Mikhael, A Game Theoretic Model of E-Marketplace Participation Growth. Journal of Management Information Systems, Vol. 22, No. 1, 2005. Available at SSRN: https://ssrn.com/abstract=920760

Michael Galbreth (Contact Author)

University of Tennessee, Knoxville - Haslam College of Business ( email )

453 Haslam Business Building
Knoxville, TN 37996-4140
United States

Salvatore T. March

Vanderbilt University - Strategy and Business Economics ( email )

Nashville, TN 37203
United States
615-322-7043 (Phone)

Gary D. Scudder

Vanderbilt University - Operations Management ( email )

Nashville, TN 37203
United States

Mikhael Shor

University of Connecticut Department of Economics ( email )

365 Fairfield Way, U-1063
Storrs, CT 06269-1063
United States

HOME PAGE: http://www.mikeshor.com/

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