Is the Information Differentiation Advantageous to E-tailers?: an Economic View

Although the Internet has enabled some new forms of sales practices to emerge, the majority of independent e-tailers merely act as slightly different types of electronic middlemen who sell largely undifferentiated products by performing virtually the same functions as what conventional retailers and wholesalers have been. Regardless of the type of intermediation, however, one of the critical problems facing product e-tailers is running out of funds due to nonmaterialization of profits, and the resulting risk of e-tailers yielding to these pressures by terminating their on-line presence or ceasing operations completely. To alleviate the pressure, some e-tailers have begun to provide online customers with differentiated information services such as one-click shopping tools and customer reviews. This paper is an attempt to explain why such information differentiation maneuver may not be effective in certain circumstances. For this purpose, we model the effect of information differentiation activities to explain that such a costly effort might not be rewarding but should be made to sustain and/or improve a given status at the current visitor level.