Zhu, K., 2004, "Information Transparency of Business-to-Business
Electronic Markets: A Game-Theoretic Analysis," Management Science, 2004, Vol. 50, No. 5, pp. 670-685.
Information Transparency of Business-to-Business
Electronic Markets:
A Game-Theoretic Analysis
Kevin
Zhu
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.
Key words
Information economics,
information transparency, economics of
electronic markets, online exchange, asymmetric information, game
theory, information transparency hypothesis