A transaction cost based comparison of consumers' choice between conventional and electronic markets

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School of Business | Doctoral thesis (monograph) | Defence date: 2007-05-25
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Date
2007
Department
Major/Subject
Tietojärjestelmätiede
Information Systems Science
Mcode
Degree programme
Language
en
Pages
171 s.
Series
Acta Universitatis oeconomicae Helsingiensis. A, 302
Abstract
New forms of electronic markets enabled by the Internet have received much attention over the past decade. A considerable amount of that attention has been focused on the promise of lower prices and easier methods of information search offered by electronic markets in comparison with conventional purchasing. However, a number of studies have also identified obstacles to participate in these new markets. Credit cards scares, delivery costs, and lack of trust in the virtual merchant have been among the culprits that purportedly limit the growth of Internet consumer commerce. This study offers a holistic approach, based on transaction cost economics, to explain consumer resistance to web-based purchasing. The application of a premise from New Institutional Economics to consumer decision making, however, raises questions of suitability. These concerns are addressed through a framework that distinguishes three processes as constituting electronic transactions: search, exchange, and settlement. This framework and transaction cost economics are used to model a consumer's choice between an electronic and a conventional market transaction. This model was tested using data from a consumer survey and statistical methods. The results confirm the main hypothesis of this study: transaction costs do matter in consumers' choices. Furthermore, transaction cost components can be identified and their relative importance in consumer decision making assessed. In terms of transaction cost economics, ease of verification (asset specificity) is the most important determinant, followed by frequency and uncertainty. The perceived price advantage of electronic markets weighs less in consumers' channel choice than the ease of verification.
Description
Supervising professor
Saarinen, Timo, professor
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