Economic implications of B2B electronic markets: the private and social desirability of information transparency

This paper explores the private and social desirability of information transparency of a B2B exchange that provides an online platform for information transmission. The abundance of transaction data available on the Internet tends to make information more transparent in B2B electronic markets. In such a transparent environment, it becomes easier for firms to obtain information that may allow them to infer their rivals\´ costs than in a traditional, opaque market. Then, how does this benefit firms participating in the B2B exchanges? To what extent does information transparency affect consumers and the social welfare in a broader sense? Focusing on the informational effects, this study explores firms\´ incentives to join a B2B exchange by developing a game-theoretic model under asymmetric information. We then examine its effect on expected profits, consumer surplus, and social welfare. Our results challenge the "information transparency hypothesis" (i.e., open sharing of information in electronic markets is beneficial to all participating firms). In contrast to the popular belief we show that information transparency could be a double-edged sword. Although its overall effect on social welfare is positive, its private desirability is deeply divided between producers and consumers, and even among producers themselves.