| With commercial activity on the Internet gaining momentum, digital markets like electronic stores are opening up a new vista of opportunities. Yet so little is known or understood regarding the key issues in this new business domain, such as what types of marketing strategies will succeed, what types of technologies and applications should be deployed, and what pricing and customizing mechanisms will be most profitable for suppliers and buyers. This research seeks to provide guidelines and insights on technology, market mechanisms, incentive systems, and marketing channel strategies in this digital economy.;Existing economic and marketing theory and historical experience provide little guidance because of the technical and political differences between this new market and the traditional market institutions. Field experiments can be costly, as well as politically risky. Virtual field experiments can conveniently serve as test beds for this new market institution---the collaboratory market environment on the Internet.;I have developed a large-scale, distributed experimental environment for a digital economy, using the combination of database and telecommunication technologies. That is, the Experimental Digital Economy (EDE, http://ede.bus.utexas.edu/), using DB2, Apache server, Java, C/C++, and CGI scripts on IBM RS/6000 and Windows NT workstations, allows running of large-scale, distributed, Web-based, long-run experiments. In addition, database management systems enable experimenters to analyze data while experiments are still running and also to provide flexible access to the data set. Internet-based environments help subjects participate in these experiments at very low cost. Participants make sell-or-buy decisions using the same set of technologies on which real Internet business processes and transactions are based. EDE allows us to conduct a series of experiments on market mechanisms and their efficiency while sustaining external validity and providing answers to interesting behavioral questions.;Using this technology infrastructure and virtual field experiments, I explore the effectiveness of market mechanisms (the posted-offer and auction systems) for digital products and test the effectiveness of certification as means of preventing the market failure. This research is one of the first attempts to address this research issue of a digital economy, using a realistic virtual-world environment. |
