Uncertain Switching Costs and Purchase Decisions in Electronic Markets

As advances in information technologies (IT) significantly reduce the time and cost of acquiring and processing product information, some buyers that traditionally work with one or few suppliers have switched to the market environment. The rapid growth of e-commerce has led researchers to believe that a uniform shift to the electronic markets is inevitable. This article examines the issue from the perspective of uncertain supplier’s performance, switching costs, and the value of information. We show that the presence of uncertainty and switching costs favors contractual relationships between buyers and suppliers. As IT makes the market more competitive, the marginal value of information diminishes. Meanwhile, the overall effect of IT on uncertainty and switching costs is fairly limited. As a result, buyers facing high uncertain supplier’s performance and switching costs may find working with a small number of suppliers a better choice.