The Role of Middle-Agents in Electronic Commerce

Things didn’t quite work out that way. Although it’s true that in some industries, processes of socalled disintermediation occurred (one example being the increased sale of tickets by airline Web sites, sometimes removing ticket agents from the distribution channel), in other industries new types of intermediaries arose, providing their own style of added value to electronic commercial interactions. In fact, sometimes this process occurred in parallel with disintermediation within the same industry (for example, Expedia, Orbitz, and others establishing themselves as intermediaries for the sale of airline tickets). Another prominent example is eBay, which established itself as an intermediary through which end users could buy and sell commodities. eBay’s success and rapid rise provided a case study on new ways in which an intermediary can provide value to a diverse community on the Web. Although the sociology of these new intermediaries is fascinating in its own right, we wanted to explore theoretical questions related to the presence of these middlemen in electronic markets. How does the intermediaries’ existence affect electronic markets’ efficiency? What role is played by the various strategies that these intermediaries might adopt? What happens if they can sign long-term contracts with their suppliers? What if they can pursue more sophisticated pricing strategies? We developed an electronic marketplace simulation—specifically, a marketplace of information—to explore these questions. Automated agents, which we designed to act as information suppliers, information consumers, or information middlemen (whom we dubbed InfoCenters), played all the roles in these simulations. We ran the simulations to test how InfoCenter intermediaries affected the market’s efficiency and price behavior. We looked at several different middleagent strategies, comparing how they—and the market—performed in each case. The bottom line: InfoCenters significantly enhanced the efficiency of our information marketplaces. And more sophisticated InfoCenters did the best of all.