Large-scale, Long-term and Virtual Experimental Environments for Electronic Markets

Theory testing is as important as theory building in a nascent field like Electronic Commerce (EC). While there is a small but growing body of theoretical models of EC, the literature on empirical testing of beliefs, assumptions and models of EC is sparse, primarily due to difficulties in collecting relevant and detailed data from the field. Experimentation can provide a valuable alternative to EC field research. In spite of wellknown problems of external validity, carefully designed experiments can let researchers observe and record EC phenomena which would be virtually impossible to capture in the real world. As an alternative to empirical field research, we present Experimental Digital Economy (EDE), a technological environment for creating a virtual electronic market, and a methodology to test market mechanism related propositions and to understand dynamics of a controlled digital economy. Using this technology infrastructure along with suitable incentives and rules for market agents, we explore the effectiveness of various market mechanisms (e.g., posted prices and auction systems) for digital products involving information and software goods.