The logic of collective consuming: Consumers as sub contractors on electronic markets

In this article, contrary to popular belief, it is argued on the basis of transaction cost economics that consumers will become subcontractors on electronic markets. The effects of this tendency counter the benefits that might accrue to them as a result of product differentiation and price discrimination by firms, and is in actual fact an inescapable part of electronic markets, given the nature of the products and market mechanisms one should expect. Consumers invest time and effort building up a relation with an e‐tailer; an investment that is idiosyncratic. The e‐tailer only needs to invest in generic assets that enable him to automate the process of collecting and processing customer information needed in order to differentiate between products and discriminate between prices. The consumer becomes a dependent subcontractor.