Information supply on the internet: an analysis of supplier behaviour and consequences for customer decision making

Along with the dispersion of the internet, it is a common hypothesis that market transparency will improve on account of the huge amount of easily accessible information. This hypothesis neglects problems of information quality. Under certain circumstances, there are incentives for suppliers to provide false information about their products on the internet, in order to differentiate from the competitors and to increase their sales. In this paper, the theory of economics of information is applied to analyse the specific characteristics of the internet as an information medium. In particular, the authors identify three variables determining the quality of information provided on the internet: (1) the suppliers’ competitive positions, (2) the disclosure probability of false information, and (3) the customers’ loss of confidence. Subsequently, the authors use a game theoretic approach to analyse the impact of the three variables on information quality to derive insights on market transparency.