The Welfare Effects of Non-Price Competition Among Real Estate Brokers

This paper examines the role of brokers in economizing on transaction costs in the housing market. By lowering the cost of transactions, brokers create welfare gains compared to a market in which buyers and sellers transact on their own. However, if brokers engage in unproductive, non-price competition to acquire a larger share of available listings, then some of the welfare gains are dissipated. Using a partial equilibrium model, this paper shows how an excessive commission rate can lead to this result.     

Competing through information provision

This paper studies the symmetric equilibria of a two-buyer, two-seller model of directed search in which sellers commit to information provision. More informed buyers have better differentiated private valuations and extract higher rents from trade. When sellers cannot commit to sale mechanisms, information provision is higher under competition than under monopoly. In contrast, when sellers commit to both information provision and sale mechanisms, I identify simple conditions under which sellers post auctions and provide full information in every equilibrium, ensuring that all equilibrium outcomes are constrained efficient. Sellers capture the efficiency gains from increased information and compete only over non-distortionary rents offered to buyers.     

Hot and Cold Markets

This article considers why housing market conditions, including the ratio of buyers to sellers, expected time-to-sale and transaction prices are sensitive to fundamentals. These high sensitivities result from feedback: market participants optimally respond to shocks in a manner that amplifies a shock's initial impact, which in turn elicits further reinforcing responses. For example, a positive demand shock brings more buyers into a market. This improves the bargaining position of sellers, who then sell more quickly, decreasing the stock of sellers in the market. This further increases the relative number of buyers to sellers, amplifying the initial shock.     

The bonding effects of relationship value and switching costs in industrial buyer–seller relationships: An investigation into role differences

Despite the established importance of buyer–seller relationships in B-to-B markets, research to determine the differential effects that keep suppliers and customers in a relationship has been scarce. Referring to transaction cost analysis, this study investigates how switching costs and relationship value as perceived by each side unfold their bonding forces in such a relationship. Based on a large scale survey administered in Germany, Korea, New Zealand, and Argentina among marketing/sales and purchasing managers the study shows that relationship value has a stronger impact on intentions for relationship enhancement, search for alternatives and switch intention than switching costs for both buyers and sellers. Only with regard to relational tolerance and only for buyers do switching costs play a greater role than relationship value. Furthermore, buyers base their future relationship intentions more on the current state of the relationship than suppliers. Our results suggest that role differences must be taken into account when studying institutional arrangements in B-to-B markets.     

On the incidence of commissions in auction markets

We analyze the welfare consequences of an increase in the commissions charged by intermediaries in auction markets. Commissions are similar to taxes imposed on buyers and sellers, and standard economics suggests that both sellers and buyers are made worse off by the tax. However, we show that when the buyers' participation constraint binds and when sellers set optimal reservation prices, the level of commissions correlates to participation and reservation prices in such a way that participating buyers strictly gain from higher commissions.     

Ethnicity in housing markets: Buyers,sellers and agents

This paper examines how ethnicity related to cultural differences arising from ethnic background affects housing market transactions in the Atlanta metro area. Using both the US Census and Wikipedia approaches to infer ethnicity from individuals' names, we find that the interplay of buyer, seller, and agent ethnicity composition affects interaction in the housing market. Sellers working with listing agents in the same ethnic group set higher listing prices and enjoy higher selling prices and quicker sales. Agents working with same ethnicity buyers yield higher prices and liquidity. Even though sellers only communicate with buyers through their agents, houses sold by sellers to buyers of same ethnicity have higher prices and sell faster. And while the ethnic mix of agents and their clients matter, the ethnic mix of agents in the transaction does not.     

Group identity in markets

We present a laboratory experiment that measures the effects of group identity—one's perceived membership in social groups—on market transactions in an oligopoly market with a few sellers and buyers. We artificially induce group identity using art preferences and college majors in different treatments, respectively. Subjects are randomly assigned into the roles of buyers and sellers and interact repeatedly. We find that the presence of groups influences both the selection of trading partners and the determination of prices. All else equal, sellers are more likely to make offers to ingroup buyers, and the buyers are more likely to accept offers from ingroup sellers. There are considerable intergroup price differentials with the outgroup sellers charging a lower price than the ingroup sellers.     

How does customer orientation (in)congruence affect B2B electronic commerce platform firms' performance?

Business-to-business (B2B) electronic platforms have become important channels for transforming traditional modes of transaction. The success of these platforms relies heavily on the platform firms' customer orientation (CO) practices, which are designed to attract both sellers and buyers. This study draws on the cross network effect theory to explore whether and how a B2B e-commerce platform firm's (in)congruent CO strategic initiatives toward sellers or buyers affect the firm's performance. In addition, the moderating effects of seller-side and buyer-side demand uncertainty on the relationship between CO (in)congruence and platform firm performance are investigated. The analysis of data collected from 185 B2B electronic platform firms in China reveals that CO incongruence is more beneficial to firm performance than CO congruence. Furthermore, when seller-side demand uncertainty is high, an increase in seller-focused CO incongruence (i.e., higher seller orientation than buyer orientation) or buyer-focused CO incongruence (i.e., lower seller orientation than buyer orientation) improves or impedes a B2B e-commerce platform firm's performance, respectively. However, when buyer-side demand uncertainty is high, an increase in either type of CO incongruence does not improve firm performance. These findings contribute to the literature on and practices of B2B e-commerce and customer orientation.     

Managing Seller–Buyer Relationships during New Product Development*

Ineffective relationship management with potential buyers during new product development (NPD) can be an important contributor to new product failure in technology‐based, industrial markets. However, empirical research on managing these relationships remains underdeveloped. This study addresses this deficiency by developing an empirically based taxonomy of relationship approaches used by sellers to develop technology‐based, industrial innovations, identifying situational characteristics that correlate with the choice of a particular relationship approach, and evaluating sellers' satisfaction with their relationship approach. The study's conceptual model is rooted in transaction cost analysis (TCA) and draws from extant literature on seller–buyer relationships during NPD. It was tested with data from 334 small to mid‐sized firms in a variety of technology‐based industrial markets. The results indicate that sellers use three basic relationship approaches during NPD: a bilateral approach, a buyer‐guided approach, and a seller‐guided approach. While the bilateral approach relies on a mutual exchange of information, the buyer‐guided and seller‐guided approaches do not. Juxtaposed with the high levels of satisfaction experienced by sellers in the sample, the study suggests that no one relationship approach is universally desirable. Therefore, managers may need to engage in a portfolio of relationship approaches with buyers during NPD; further, these approaches should correlate with buyer‐related (i.e., perceived buyer knowledge and prior relationship history) and innovation‐related (i.e., product customization and technological uncertainty) characteristics. Collectively, these results can help sellers optimize their relationships with buyers during NPD.     

Mechanism choice and the buy-it-now auction: A structural model of competing buyers and sellers

A striking feature of many online sales platforms is the coexistence of multiple sales mechanisms. Items on eBay, for instance, are frequently offered through auctions, posted prices, and buy-it-now auctions. In this article, I study how this mechanism multiplicity influences the welfare of buyers and sellers. I specify and estimate a structural model of mechanism choice in online markets, in which I consider both sides of the market: On the demand side, buyers' choices among available listings are equilibrium outcomes of an entry game. On the supply side, sellers make equilibrium decisions when choosing sales mechanisms and prices. I estimate this model using data from sales of baseball tickets on eBay and calculate consumer and seller rents in three markets: the actual market with all three sales mechanisms and two counterfactual markets with auctions and fixed prices or only fixed-price listings, respectively. I find that the addition of auctions to fixed-price markets hurts sellers and risk-averse buyers but benefits risk-neutral buyers. Additionally, the consumer surplus increases when buy-it-now auctions are offered but the seller surplus is reduced further. I discuss the intuition for the cause of this result.     

Bilateral strategic groups: The market for nontactical navy information systems

Although recent studies of strategic groups have provided much insight into the nature of intra-industry rivalry, most studies have focused on the strategies of seller firms. In this paper we argue that the bilateral exchange between groups of buyers and sellers in adjacent markets should be made explicit. Within this bilateral context, the market for non-tactical Navy infomation systems is empirically examined. Strategic groups are developed for both seller and buyer industries, and the interaction between these groups are explored over time. In particular, two market interventions, the imposition of industrial funding procedures in 1984 and a Life-Cycle requirement order in 1988, were examined with respect to their impact on seller/customer exchanges and vertical integration strategies. Significant changes in strategies were noted, and explained within a transaction cost framework.     

Experimenting with purchase history based price discrimination

Many purchases of differentiated goods are repeated, giving sellers the opportunity to engage in price discrimination based upon the shopper's previous behavior by either offering loyalty discounts to repeat buyers or introductory rates to new customers. Recent theoretical work suggests that loyalty discounts can be profitable to sellers when customer preferences are not stationary and sellers can pre-commit to prices for repeat buyers, but otherwise returning customers can be expected to pay the same or more than new buyers. This paper reports behavior in controlled laboratory experiments designed to empirically test the impact of these factors on pricing strategies. The results generally support the comparative static predictions of the theoretical model. When customer preferences are fixed over time, sellers attempt to lure customers from their rival. Price pre-commitment for repeat shoppers when buyer preferences vary over time resulted in modest loyalty pricing, but the discounts are not as prevalent as predicted as sellers rarely price below cost. Behaviorally, price pre-commitment to loyal customers is found to reduce prices overall.     

A flexible approach to determining financial terms of sale

With high inflation and interest rates the financial or credit terms of a sale are an increasingly important source of foods for buyers and an expensive cost for sellers. This article proposes some guidelines for setting terms of sale policies which may benefit both buyers and sellers. A method for determining the best terms alternative from the buyers perspective is also described.     

Competition and the signaling role of prices

In a market where sellers are heterogeneous with respect to the quality of their good and are more informed than buyers, high quality sellers' chances to trade might depend on their ability to inform buyers about the quality of the goods they offer. We study how the strength of competition among sellers affects the ability of sellers of high quality goods to achieve communication by means of appropriate pricing decisions in the context of a market populated by a large number of strategic price-setting sellers and a large number of buyers. When competition among sellers is weak high quality sellers are able to use prices as a signaling device and this enables them to trade. By contrast, strong competition among sellers inhibits the role of prices as signals of high quality, and high quality sellers are driven out of the market.     

FHA Mortgage Discount Points, House Prices and Consumer Behavior

The allocation of FHA discount points between buyers and sellers has recently been the subject of empirical investigation. The research reported here examines this relationship in more detail. Regression equations were estimated for separate price categories of housing using dummy variables for the number of discount points being charged. Separate equations were also estimated for periods when points were rising and when they were falling. The results essentially are that sellers attempt to shift all of the discount points to buyers and frequently are successful. However, in certain situations the points are shared between buyers and seller.     

Managing seller-buyer new product development relationships for customized products: a contingency model based on transaction cost analysis and empirical test

Sellers often customize their product offerings in order to increase the value offered to individual buyers and gain a competitive advantage over the seller’s competitors. However, such customization has a downside—it usually requires considerable seller-buyer interactions aimed at matching the seller’s technological capabilities with the buyer’s needs, which can pose exchange risks such as the safeguarding and adaptation problems noted in the transaction cost analysis literature. In the present study, we develop a contingency model to investigate the impact of product customization on sellers’ perceived relationship satisfaction and subsequent expectations of relationship continuity. We draw on the logic of transaction cost analysis to hypothesize that product customization’s effect on satisfaction and continuity may be moderated by three activities that sellers may engage in during the new product development (NPD) process: education, product knowledge generation, and joint new product development.Our substantive hypotheses were tested with data from a national survey of 296 small to medium size firms in several high-tech industries using a series of hierarchical OLS regression models. Overall, we found mixed support for our hypotheses. The results indicated that joint new product development reduced the negative effect of product customization on seller satisfaction and enhanced customization’s positive effect on continuity, as expected. Contrary to our expectations, product knowledge generation activities increased the negative effect of customization on satisfaction; it also had no significant moderating impact on continuity. Buyer education activities were found to reduce the negative impact of customization on satisfaction, but showed no moderating effect on continuity.This study offers important theoretical and managerial implications. It is one of the first to rely on transaction cost analysis as a basis for examining how various relationship activities conducted during the new product development process moderate product customization’s effect on qualitative outcomes. Whereas traditional NPD processes have emphasized unilateral approaches to product development, our study provides evidence of how bilateral approaches to NPD can benefit sellers of innovations. We provide new insights for managers to consider when deciding whether to engage buyers early on and then continue interacting with them throughout the product development process when developing customized products.     

Regulating B2B online reverse auctions through voluntary codes of conduct

In response to real and perceived abuse by market makers, buyers, and sellers, some industry trade groups representing suppliers have developed voluntary codes of conduct, white papers, and other forms of guidance for online reverse auction participants. The intent of these guidelines is to improve both the reverse auction process and relationships between buyers and sellers. This paper examines the rationale for creating guidelines and codes of conduct, and examines their efficacy in regulating reverse auctions to achieve improved outcomes for market makers, buyers, and sellers. Data from primary and related secondary sources indicate that industry-specific codes of conduct and guidelines have not had a favorable impact.     

Real Estate Brokers, Nonprice Competition and the Housing Market

Given a fixed commission rate and easy entry, economic profits must be competed away on some nonprice margin in the real estate brokerage market. This paper focuses on nonprice competition in the level or quality of services offered buyers and sellers in the market, examining the equilibrium adjustment process, comparative static predictions and efficiency implications. In contrast with earlier studies focusing on wasteful advertising, this paper demonstrates that higher commission rates can either increase or decrease deadweight loss, depending upon how broker services affect buyer and seller transaction costs.     

The origins of power in buyer–seller relationships

Who, or what, holds power in business-to-business buyer–seller relationships is a debate at the heart of power theory. Power in buyer–seller relationships is variously seen as the property of organizations, individuals or relationships yet to be theoretically valid and useful to management, integration of these schools of thought needs to be operationalized. This paper opens up future research avenues through identifying how buyers and sellers understand the origins of power and the nature of self perceived and countervailing power. The paper presents results from 10 focus groups of both buyers and sellers revealing the underlying origins of experienced power. The results support the proposition that power in buyer–seller relationships is a pluralistic concept and that extant theories focused on organizational, individual or relational elements of power are independently too narrow in their reflections of the power construct; rather, they are all part of the same broad construct.     

Exploring the impact of trust and relational embeddedness in e-marketplaces: An empirical study in Taiwan

B2B transaction is a rapid growth section within e-commerce. However, despite the increase in the number of B2B transactions, only a few e-marketplaces have successfully attracted a large number of buyers and sellers. The purpose of this study is to investigate the underpinning forces that influence the organizational decision to adopt e-marketplaces and to improve competitiveness through continuous participation in e-marketplaces. This study applies the technology acceptance model, relational embeddedness, and the trust theory to explore the impact of perceived ease of use, perceived usefulness, and relational embeddedness on trust associated with e-marketplace providers. This study further tests the impact of relational embeddedness and trust on relationship performance in the context of e-marketplaces. Based on 284 active buyers and sellers in well-known public e-marketplaces, the empirical findings suggest that perceived ease of use positively influences perceived usefulness of e-marketplaces; perceived ease of use influences user trust of e-marketplaces via perceived usefulness; and relational embeddedness leads to enhanced trust in e-marketplace providers, which subsequently leads to better relationship performance. Both relational embeddedness and trust also influence relationship performance directly. This research reveals the importance of perceived usefulness and relational embeddedness on trust associated with e-marketplace providers.