*Department of Business Administration

Yonsei University, Seoul, Korea

**Department of Information and Management

Hong Kong University of Science and Technology, PRC

Ho Geun Lee

Associate Professor

Department of Business Administration

College of Business and Economics

Yonsei University

Shinchong-dong 134, Seodaemun-ku

Seoul 120-749

Korea

Email: hlee@base.yonsei.ac.kr

Tel : +(82-2) 361-4470 Fax : +(82-2) 313-5331

Many authors have predicted that one of electronic commerce effects would be lowering the market price of goods. Electronic market systems reduce search costs of buyers and thus increase price competition among suppliers. As a result, buyers participating in electronic marketplaces would enjoy lower product prices. On the contrary to this prediction, the average product price in one of the most successful electronic commerce systems is much higher than that of traditional, non-electronic markets. AUCNET is an electronic market system for used-car transactions in Japan. The quality of secondhand cars traded in AUCNET is much higher than those sold in traditional markets. This difference in car quality between the two markets, which results from new transaction risks created by electronic commerce systems, is a prime reason for the higher vehicle price in AUCNET. We have also found that used-car prices in AUCNET are slightly higher than those in traditional markets even for similar quality cars. This article suggests that the analysis of electronic market impacts on product prices should take into account economic factors beyond the buyers' search costs.

Key Words : Electronic Markets, Electronic Commerce, Transaction Prices, Auction, Market Efficiency, AUCNET, Used-car Transactions.