Reducing buyer search costs: implications for electronic marketplaces
Management Science - Special issue: Frontier research on information systems and economics
Decision Support Systems - Special issue on economics of electronic commerce
Leasing and selling: optimal marketing strategies for a durable goods firm
Management Science
Beyond the Hype of Frictionless Markets: Evidence of Heterogeneity in Price Rigidity on the Internet
Journal of Management Information Systems
A Hybrid Firm's Pricing Strategy in Electronic Commerce Under Channel Migration
International Journal of Electronic Commerce
Measuring Information Diffusion in an Online Community
Journal of Management Information Systems
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We present a model to investigate the competitive implications of electronic secondary markets that promote concurrent selling of new and used goods on a supply chain. In secondary markets where suppliers cannot directly utilize used goods for practicing intertemporal price discrimination and where transaction costs of resales are negligible, the threat of cannibalization of new goods by used goods becomes significant. We examine conditions under which it is optimal for suppliers to operate in such markets, explaining why these markets may not always be detrimental for them. Intuitively, secondary markets provide an active outlet for some high-valuation consumers to sell their used goods. The potential for such resales leads to an increase in consumers' valuation for a new good, leading them to buy an additional new good. Given sufficient heterogeneity in consumers' affinity across multiple suppliers' products, the "market expansion effect" accruing from consumers' cross-product purchase affinity can mitigate the losses incurred by suppliers from the direct "cannibalization effect." We also highlight the strategic role that the used goods commission set by the retailer plays in determining profits for suppliers. We conclude the paper by empirically testing some implications of our model using a unique data set from the online book industry, which has a flourishing secondary market.