The Impact of Electronic Marketplaces on Product Prices: An Empirical Study of AUCNET

:Many authors have predicted that electronic commerce will lower the market price of goods. By reducing buyer search costs, they argue, electronic market systems increase price competition among suppliers. As a result, buyers participating in electronic marketplaces should enjoy lower product prices. Contrary to this prediction, the average product price in AUCNET, one of the most successful electronic commerce systems, is much higher than in traditional, nonelectronic markets. AUCNET is an electronic market system for used-car transactions in Japan. The secondhand cars traded in AUCNET are of much higher quality than those sold in traditional markets. This difference between the two markets, which results from new transaction risks created by electronic commerce systems, is an important reason for the higher vehicle prices in AUCNET, but used-car prices in AUCNET are slightly higher than in traditional markets even for cars of similar quality. This article suggests that analysis of the effect of electronic markets on product prices should take account of other economic factors in addition to buyer search costs.