Designing internet-based selling mechanisms: Multi-channel market transparency strategy

The Internet has transformed the nature of business-to-consumer transaction-making practices in many industries. Sellers now attract customers with innovative Internet-based selling mechanisms that can reveal or conceal market information. We define market transparency as a design dimension for Internet-based selling that involves firm choices about the level of availability and accessibility of information about products and prices. Firms can influence market transparency either by designing and implementing their own Internet-based selling mechanism, or by offering their products through an existing electronic market. We develop an economic model of a supplier that price discriminates across distribution channels based on their market transparency levels. The model provides normative guidelines for firms to set transparency levels and prices across distribution channels in order to maximize profits. We empirically evaluate airline pricing and market transparency to show the applicability of these guidelines. The evidence suggests that relative prices and transparency levels across the Internet and traditional air travel channels are sub-optimal.