Competing against Electronic Intermediaries - the Case of Digital Music

The development of Internet technologies and e-commerce has opened up new possibilities for suppliers to address their consumers directly. However, it has also posed new challenges for suppliers to position themselves against intermediaries, who may have been necessary partners in brick-andmortar worlds, but are now also competitors. Despite significant potential savings by excluding intermediaries from their supply chains, in many markets suppliers have for the time being lost the battle against intermediaries. We focus on the case of digital music and use experimental techniques to analyse how consumers search for products and how they intuitively respond to changes in several vendor and market-related parameters. We implement a simplified task that is easy to understand but does not allow participants to calculate optimal solutions. Employing various measurements for the acceptance of supplier and intermediary online shops, we find that consumers are especially responsive to changes in price and supplier product assortment, while a higher number of suppliers in the market does not necessarily lead to a stronger desire for intermediation.