Collective Consuming: Consumers as Subcontractors in Electronic Markets

In this essay, contrary to popular belief, it is argued on the basis of transaction cost economics that consumers will become dependent subcontractors in electronic markets. Consumers invest time and effort building up a relationship with a producer, (r)e-tailer, or intermediary—an investment that is idiosyncratic. The intermediary only needs to invest in generic assets that enable him or her to automate the process of collecting and processing customer information needed to differentiate products and discriminate prices. As subcontractors, consumers face high switching costs and are thus dependent on intermediaries. Virtual communities of consumers that organize countervailing power will not mitigate this tendency.