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The Equilibrium of B2B e-Marketplaces: Ownership Structures, Market Competition, and Previous Buyer-Seller Relationships

By Kexin Zhao, Mu Xia, Michael J. Shaw and Chandrasekar Subramaniam


Abstract: B2B e-marketplaces drastically alter the structure of buyer-seller relationships. To study the equilibrium of a buyer-seller exchange network before and after the emergence of e-marketplaces, we develop a multiple-person noncooperative game, where rational firms select optimal interfirm connections and the network is endogenously formed and evolved. We examine when previous buyer-seller relationships exist, under what conditions both neutral and biased B2B e-markets will sustain in both the oligopoly market and the oligopsony market. Our analysis identifies critical success factors for a sustainable e-marketplace. First, low e-market channel setup costs are critical to attract firms ’ participation. Second, the number of buyers and sellers affects the sustainability of B2B e-markets. For a neutral e-marketplace to survive, high fragmentation is required on both sides. For a biased e-market, how the number of firms on the non-owner side influences the e-market equilibrium depends on market competition. Third, in both the oligopoly market and the oligopsony market, a neutral e-market has similar equilibrium conditions. By contrast, market competition has a profound impact on the formation of a biased e-market. The biased e-market formed by the more competitive side is less likely to survive. Finally, we show that social welfare is improved with the emergence of a neutral e-marketplace, but the change is ambiguous in a biased B2B e-marketplace case. * Corresponding author

Topics: Economics, game theory, B2B e-marketplaces, ownership structure, market competition
Year: 2009
OAI identifier: oai:CiteSeerX.psu:
Provided by: CiteSeerX
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