Market Transparency Strategy in E-commerce: Modeling and Empirical Analysis

Internet technology has transformed the nature of business-to-consumer transaction-making practices in many industries. One of the significant impacts has occurred with respect to the transparency of markets for end-consumers. Market transparency is defined as the level of availability and accessibility of information about products and prices. We show how firms can leverage different ways to reveal information to consumers in the presence of advanced ecommerce technologies. We develop an economic model that provides normative guidelines for sellers to set prices in a market with heterogeneous transparency strategies. The results suggest that if the degree of information disclosure to consumers affects their economic behavior, relative prices among sellers should be adjusted accordingly to maximize profits. Moreover, knowledge about the demand function and about the impact of market transparency on willingness-to-pay can improve the effectiveness of these guidelines. Finally, we empirically evaluate transparency strategies in the air travel industry to show the applicability of the strategic guidelines derived from the model.