Information Transparency of Business-to-Business Electronic Markets: A Game-Theoretic Analysis

Management Science, May 2004

34 Pages Posted: 9 Apr 2004

See all articles by Kevin Zhu

Kevin Zhu

University of California, San Diego

Abstract

The abundance of transaction data available on the Internet tends to make information more transparent in electronic marketplaces. In such a transparent environment, it becomes easier for suppliers to obtain information that may allow them to infer their rivals' costs. Is this good news or bad news? In this study, we focus on the informational effects of business-to-business (B-to-B) exchanges, and explore firms' incentives to join a B-to-B exchange that provides an online platform for information transmission. We then study the equilibria by developing a game-theoretic model under asymmetric information. We examine whether the incentives to join a B-to-B exchange would be different under different competition modes (quantity and price), different information structures, and by varying the nature of the products (substitutes and complements). Our results challenge the "information transparency hypothesis" (i.e., open sharing of information in electronic markets is beneficial to all participating firms). In contrast to the popular belief, we show that information transparency could be a double-edged sword. The individual rationality of participation in the online exchange reflects the tradeoff between information transparency and data confidentiality. This may have important implications for the microstructure design (e.g., data access rules) of B-to-B electronic marketplaces.

Keywords: Information economics, information transparency, economics of electronic markets, online exchange, asymmetric information, game theory, information transparency hypothesis

JEL Classification: D82, L13, L15, O32

Suggested Citation

Zhu, Kevin, Information Transparency of Business-to-Business Electronic Markets: A Game-Theoretic Analysis. Management Science, May 2004, Available at SSRN: https://ssrn.com/abstract=526482

Kevin Zhu (Contact Author)

University of California, San Diego ( email )

9500 Gilman Drive
Mail Code 0502
La Jolla, CA 92093-0112
United States

HOME PAGE: http://https://rady.ucsd.edu/people/faculty/zhu/

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