It is often said that information is power in today’s economy, and this is aptly demonstrated by the emergence of many new types of information intermediaries in the last decade. The term infomediary is used for many such intermediaries, since their role is to capture, aggregate, and exploit information about participating parties in order to facilitate the efficient allocation of goods or services. Wise and Morrison (2000) note, in the context of business-to- business markets, that with the spread of digitization “value has shifted from the product itself to informa- tion about the product.” Intermediaries create value via information collection, aggregation, display, and information processing; by managing workflow for a set of transactions between a buyer and seller; by coordinating logistical services to buyers and sellers; or by providing information processing services for end-to-end transaction management. Such infomedi- aries are becoming commonplace in many business and consumer market settings, including in hotel and travel coordination (Dube and Renaghan 2000), retail marketing (Chen et al. 2002), and private online exchanges for B2B commerce (Hoffman et al. 2002).
Bailey and Bakos (1997) discuss four services offered by intermediaries: (a) aggregation of buyer demand and seller products, (b) providing trust between participants, (c) market facilitation, and (d) matching buyers and sellers. Kaplan and Sawhney (2000) reinforce the notion that electronic intermedi- aries fulfill aggregation and matching roles (e.g., via catalogs and auctions respectively), bringing “a large number of buyers and sellers under one roof” and enabling real-time negotiation of terms and price discovery. More recently, the academic and indus- try literature suggest that infomediaries have evolved from being merely matchmakers to purveyors of an array of services (see, e.g., Sarkar et al. 1995, Wise and Morrison 2000).
This paper studies the design of infomediary ser- vices. Our analysis focuses on a distinctive aspect of intermediation that we refer to as an aggregation ben- efit: buyers (and sellers) perceive greater value when there is a larger network of sellers (respectively, buy- ers) affiliated with the intermediary. We examine the impact of an intermediary offering multiple classes of service when faced with a heterogeneous market of users, and discuss how the intermediary might design a menu of quality-differentiated services. We draw a contrast with prior results in versioning of informa- tion goods, and show that the intermediary-specific aggregation benefit improves the incentives for ver- sioning. From a practical perspective, our findings are significant in that they suggest that intermediaries can increase their chances of success by employing a ver- sioning strategy. The rest of this section expands on the aggregation role of intermediaries and discusses the different types of value offered in intermediary systems. Following this, we develop and analyze the intermediary model in §2–§4. In §5, we discuss how our results contribute to understanding the design of intermediary services. Section 6 concludes the paper.