The Game of Internet B2B

Abstract

Game theory accepts the expected utility hypothesis and reduces roles to the “informed” and the “uninformed” player in order to facilitate the process of constructing mathematical models. When quality is known to the seller, but not to the buyer, private markets can be modeled as a screening game, and public exchanges as a signaling game. In a private market, the buyer moves first by revealing acceptable quality. In a public exchange, the seller moves first by publicizing product information. Adoption of the technology will ultimately depend on perception of the game and payoffs relative to risks. Price competition is a significant negative externality, and opportunistic representations a real danger. When search costs are low, scope for differentiation limited, and information about quality is incomplete or imperfect, the conditions for a lemon’s market are fulfilled. A focus on commodities, global reach, and building a positive brand image for Internet business-to-business (B2B) in general should prove effective.