Zero Entry Barriers in a Computationally Complex World

Abstract

In this paper we analyze how transactions related to the digital trade of intangible goods and services is being performed on the Internet. The adoption of electronic markets in an industry has a desintermediation potential because it can create a direct link between the producer and the consumer (without the need for the intermediation role of distributors). Electronic markets lower the search cost allowing customers to choose among more providers (which ultimately reduces both the costs for the customer and the profits for the producer). In this paper we contend that electronic markets on the Internet* have the opposite effect, resulting in the increase of intermediators. We introduce transaction streams which model how transactions related to the digital trade of intangible goods are being conducted. Transaction streams help explain the types of new intermediators that are appearing on the Internet and why entry barriers are close to zero. We also prove that in transaction stream-based electronic markets, searching for the best price of intangible goods is NP-complete.