Wharton-SMU Research Center

In-House Seminar

Guest Speaker:

Ravi Aron
Assistant Professor of Operations and Information Management, The Wharton School, University of Pennsylvania

Topic:

Forward and Reverse Aggregation Equilibria in Electronic B2B Markets: Pricing and Market Efficiency

Chairperson:

Professor of Technology and Operations Management Oscar Hauptman
School of Business, Singapore Management University

Venue:

Business Block, Level 2, Seminar Room 4
Singapore Management University
469 Bukit Timah Road, Singapore 259756

Date:

Monday, 22 July 2002, at 4.00pm

Reservation:

This seminar is free. Places are limited. Please confirm your attendance by Friday, 19 July 2002, 12 noon with Ms. Lim Lih Yeng at lylim@smu.edu.sg or telephone: 6822-0197.

About the Seminar:

We formulate two models of aggregation in B2B markets -- Reverse Aggregation, the aggregation of demand by a buyer consortium, and Forward Aggregation, the aggregation of supply by a supplier consortium. A central result that emerges from our analysis is that heterogeneity in suppliers' costs of production results in gains to buyers from reverse aggregation; however, heterogeneity in buyer valuations does not produce any gains to suppliers from aggregating supply. In the case of reverse aggregation, the move to an aggregate market is a Pareto improvement for the buyers. The optimal strategy of the reverse aggregator is to constrain the participation fee to be no higher than the profits of the least efficient supplier, thus ensuring the participation of all suppliers. We show that when the forward aggregator chooses to deploy an auction-based price discovery mechanism, the resulting profits from a centralized auction market, even one that allows the suppliers to collude on quantities supplied, are dominated by the uncoordinated posted price solution. We identify the factors that drive the relative profitability of auction-based forward aggregation vis-à-vis the decentralized markets regime.