Product information dissemination in the internet and markets for product information

Information is of utmost importance in the operation of every market, including, recently emerged, on-line markets for products and services. Market participants utilize available and relevant information to decide upon their actions and improve their welfare by trading and consuming resources. An important component of all information that market participants utilize, is information that pertains directly to the products and services that are traded. Indeed, it has been claimed that the real economic impact of the Internet goes well beyond online sales: The World Wide Web offers an unprecedented opportunity to product manufacturers and service providers to thoroughly and to cost-effectively inform consumers about the details of new service and product offerings, regardless of whether the sales take place over physical or electronic channels. This dissertation focuses on the mechanism by which sellers decide what information about their products to make available, and how, as it is believed to hold the key to understanding product information dissemination in the Internet. My thesis is that, often, producers of products and services lack the incentive to provide comprehensive and in-depth product information, which results in the phenomenon of less than perfect product information being furnished in Internet markets. I call this phenomenon the Information Deficit of the market. Analytical results suggest that while electronic markets give consumers the ability to search for available products and services with unprecedented speed and efficiency, a perfect product information regime is unattainable. This dissertation introduces analytical models for the study of product information dissemination in Internet markets. The models' central results can be used to explain real world phenomena (such as the Information Deficit phenomenon) that seem to contradict the theoretical results available in the field today. Moreover, the analysis of the role of product information reveals that higher consumer information endowment in electronic markets asymmetrically favors different classes of consumers and different types of products and services. An important result is that higher consumer information endowment asymmetrically favors differentiated and premium product offerings over their mass-market counterparts. This fact will likely have profound implications for the types of products that will dominate tomorrows markets. Furthermore, I demonstrate that a market for product information can partly correct the inefficiencies caused by imperfect information and predict that product information will begin to be traded, once an appropriate micro-transaction payment scheme becomes available. Towards this goal, I present a new business model for the operation of product and price comparison web sites. In the proposed business model, the quality of the information disseminated by sellers is connected with a monetary payment that induces better information in terms of relevance, timeliness, ease of use and overall quality.