Large-Scale, Long-Term and Virtual Experimental Environments for Electronic Markets

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While the Internet economy is growing rapidly, little is systematically known or understood regarding key business issues in this new domain. Emerging theories of electronic commerce and organizing electronic business are based on the physical economy. However, the literature on testing of related models and assumptions is sparse, primarily due to difficulties in collecting relevant field data. Field experimentation can provide valuable insights into electronic markets and can be a strong complement to the experimental economics discipline. The principal investigators have developed Experimental Digital Economy (EDE), an extensive technological environment for creating a long-term virtual electronic market. Real digital goods are produced and traded through EDE and consumed by agents based on real incentives. It enables the testing of propositions and hypotheses generated from economics based modeling of competition and consumer behavior in an electronic market, and can also lead to systematic discoveries. Prior experiments with EDE have led to insights regarding successful business strategies (e.g., mass customization, selling format, etc.) and processes (e.g., customer care, coordination) for digital products companies. The proposed research will explore the effectiveness of various market mechanisms (e.g., posted prices and auction systems, intermediary-based certification and reputation building, etc.) for information and software goods.