Competition Between Local Dealerships and Internet Markets: The Role of Local Relationships, Risk Tolerance, and Trust in Used Farm Machinery Markets

ABSTRACT We analyze recent and intended transactions of used farm equipment and find the quality of buyers' relationships with local equipment dealers influences whether their most recent purchase came from an Internet source and whether they will consider future purchases from Internet sources. We find local dealers who provide excellent parts and repair service face a double‐edged sword: customers are less likely to have purchased from Internet sources during their last transaction but express stronger absolute interest in future Internet purchases. Also, customers who view their dealer as having treated them fairly during past price negotiations are less likely to express interest in transacting on the Internet in the future. Finally, buyers sort across channels based on several personal characteristics, including risk tolerance, trust attitudes, and negotiation style, but seller sorting is primarily based on risk tolerance. Specifically, buyers and sellers with greater risk tolerance sort to online markets. [JEL Descriptors: L81, Q12].