Uses and consequences of electronic markets: An empirical investigation inthe aircraft parts industry

An electronic market is an interorganizational information system through w hich multiple buyers and sellers interact to accomplish one or more of the following market-making activities: (I) identifying potential trading partn ers, (2) selecting a specific partner, and (3) executing the transaction. I t has been suggested that electronic markets, by lowering search costs, may lead to significantly increased price competition among sellers and hence, lower prices for buyers. Or, by allowing efficient, direct interaction bet ween buyers and sellers, they may eliminate the role of intermediaries. Lit tle evidence exists to support the claims. This paper empirically examines the validity of these arguments in the context of one electronic market: in ventory Locator Service (ILS) in the aircraft parts industry. Specifically, the paper addresses two questions: When do buyers use an elec tronic market? How do electronic markets affect each of the following: pric es, inventory levels, and the role of brokers? The data show that current m odels do not adequately capture the complexity of electronic markets. For i nstance, while ILS sometimes helps buyers find a better price, in other cas es it can help suppliers extract an extra premium by providing more accurat e information on parts availability. ILS has also had little impact on the extent to which brokers are used, although the specific nature of the value added by brokers appears to be changing. Finally, inventory levels in the industry have been unaffected by the use of ILS. The scope of ILS is limited to the identification process only, so caution must be exercised in generalizing the findings to systems that also support selection and execution. However, the data do suggest additional variables that must be considered in understanding the uses and impacts of electroni c markets, including the scope of the electronic market.