Analyzing Competition and Collusion Strategies in Electronic Marketplaces with Information Asymmetry

Electronic commerce (EC) researchers are divided between those who show how EC can cause intense Bertrand competition and those who show an absence of this competition. This research takes a more central stance to show when intense competition occurs and when collusion occurs in an EC environment. We present a multi-industry investigation of competition and collusion related to firm pricing behavior using a customized data-collecting Internet agent, the Time Series Agent Retriever (TSAR). Using an analytical model, we show how EC technology increases the ability of firms to tacitly collude to keep prices higher than expected, even amid intense competition. We then develop a probit regression model to test the predictions of our theory. The results show that EC technology allows either intense competition or tacit collusion, and that EC vendors tend to choose one or the other based on industry and firm attributes. ______________________________________________________________________________