Six myths of information and markets: Information technology networks, electronic commerce, and the battle for consumer surplus

The infusion of powerful information networks into business environments is beginning to have a profound impact on the nature of governance between bu yers and sellers in the marketplace. Most articles in this area emphasize t he benefits to the consumer side of the equation due to reduced coordinatio n, search, and transactional costs. This article presents a broader view of information and markets by elucidating innovative ways that sellers can su rvive in intensely competitive markets. The article is framed in terms of s ix myths and counter-myths of information technology and effective markers. The myths provide a conventional view of how increased customization and o utsourcing, open architectures, a larger customer base, and low price guara ntees will benefit the buyer. The counter-myths illustrate that it is altog ether feasible for IT to enable supplier strategies that extract consumer s urplus. For instance, suppliers could use IT to price discriminate by tailo ring product offerings and charging buyers as much as they are willing to p ay. They could also segment markets making comparative shopping difficult, thus avoiding the competitive equilibrium. Also, suppliers could focus on t he creation of networks that lock in customers or follow aggressive pricing strategies that deter price competition. Both the myths and counter-myths are presented and examined in a polemical format using simple, fundamental economic arguments. We hope to provide pro vocative new avenues for discourse in this area by recognizing the complexi ty of interactions between buyers and suppliers in a highly networked envir onment.