ABSTRACT:
Product information websites have become ubiquitous in supporting B2C E-Commerce. This study explores their impact on firm profitability, consumer surplus, and social welfare. Using an analytical model, we show that firms take advantage of such infomediaries and reduce their own information investments, increasing their profitability. Surprisingly, we find that the existence of these websites may actually reduce social welfare. Contrary to the common belief that product information websites are good for buyers, we show that they may be hurting consumers, even when they seek to maximize consumer surplus as their principal goal. These findings question the uncritical acceptance of infomediaries as beneficial to markets in general, and buyers in particular, especially when the infomediaries assume roles that substitute the information disclosure investments that sellers freely choose to make.
Key words and phrases: B2C eCommerce, consumer surplus, electronic markets, infomediaries, information dissemination, information economics, product information