Revisit Debate on Intermediation, Disintermediation, Reintermediation due to Electronic Commerce

June 2003 | Sen, Ravi

The existing literature opposing disintermediation adopts a very realistic but broad definition of intermediary functions, making the outcome of their arguments obvious, i.e. intermediation will always exist in one form or another. Supporters of disintermediation take a more focused definition of an intermediary, i.e. an economic player that buys from the seller and sells to the buyer and reduces their transaction costs of trading by doing so. It is difficult to reconcile the debate from these opposite ends because of the lack of a common definition of intermediaries. In this paper we have used the definition adopted by supporters of disintermediation to show that disintermediation due to web-based e-commerce is never a possibility. The paper uses a two-stage extensive form game with simultaneous moves in the first stage to analyse the effect of web-based e-commerce on intermediated offline channel structures. The model is solved for the Nash equilibrium. Depending on the relation between the mark-up of existing offline intermediaries and the discomfort cost (associated with online channel structures) of buyers, the game has two equilibria-one in which the manufacturer continues to sell through an intermediated offline channel structure, and the second in which the manufacturer sells through a combination of direct-online-channel structure and intermediated-online and intermediated-offline channel structures.

Author

Co-author(s)

  • Ruth C. King

Publication(s)

Electronic Markets