Chapter 12: Economics, Global, and Other Issues in Electronic Commerce pptx

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© Prentice Hall, 2000
Chapter 12
Economics, Global, and
Other Issues in
Electronic Commerce
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© Prentice Hall, 2000
Learning Objectives
❚
Identify the major impacts of Web-based economics
❚
Describe the major components of Web-based
economics
❚
Analyze the impact of online markets on competition
❚
Describe the impacts and industry structure on
intermediation
❚
Describe the role and impact of virtual communities
❚
Evaluate the issues involved in global electronic
commerce
❚
Analyze the impact of EC on small businesses
❚
Understand the research opportunities in EC
❚
Describe the factors that will determine the future of
EC

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Marketplace V s. Marketspace
❚
Markets have three main functions
❙
Matching buyers and sellers
❙
Facilitating the exchange of information, goods,
services and payments
❙
Providing an institutional infrastructure
❚
Electronic Marketplaces = Marketspaces
❙
Increase effectiveness
❙
Lower distribution costs
❙
‘Friction-free’ markets
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Marketplace V s. Marketspace
(cont.)
❚
Regular and EC economics are completely
different
❙
EC involves gathering, selecting, synthesizing,
and distributing information

❙
Economics of EC starts with supply and
demand, and ends with pricing and
competition
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The Components of
Digital (Virtual) Economics
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Digital Products
Information and entertainment products that are digitized :
•
Paper-based documents : books, newspapers, magazines journals, newsletters
•
Product information : product specifications, catalogs, user manuals
•
Graphics : photographs, postcards, calendars, maps, posters, x-rays
•
Audio : music recordings, speeches, lectures, industrial voices
•
Software : programs, games, development tools
Symbols, tokens and concepts :
•
Tickets and reservations : airlines, hotels, concerts, sport events, transportation
•
Financial instruments : checks, electronic currencies, credit cards, securities
Processes and services :
•
Government services : forms, benefits, and welfare payments, licenses
•

Electronic messaging : letters, faxes, telephone calls
•
Business value creation processes : ordering, bookkeeping, inventorying
•
Auction, bidding, bartering
•
Remote education, telemedicine, and other interactive services
•
Cybercafes interactive entertainment, virtual communities
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The Consumers— people worldwide that surf the Web are potential
buyers of goods and services
❚
The Sellers— frontstores available on the Net, advertising and/or
offering millions of items
❚
The Infrastructure Companies— companies provide the
hardware and software necessary to support EC
❚
The Intermediaries— intermediaries of all kinds offer their services
on the Web
❚
The Support Services— ranging from certification and trust, which
assures security to knowledge providers
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Content Creators— media-type companies create and perpetually
update Web pages and sites
The Components of

Digital (Virtual) Economics (c ont.)
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Competition in Electronic Commerce
❚
Impacts on competition
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Lower buyers’ search cost
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Speedy comparisons
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Differentiation
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Lower price
❙
Customer service
❙
Digital products lack normal wear and tear
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Competition in Electronic Commerce
(cont.)
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Perfect competition
❙
Enable many buyers and sellers to enter the market
at little or no cost (no barriers to entry)
❙
Not allow any buyers and sellers to individually
influence the market

❙
Make certain products homogeneous (no product
differentiation)
❙
Supply buyers and sellers with perfect information
about the products and the market participants and
conditions
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Competition in Electronic Commerce
(cont.)
❚
Observations regarding competitiveness
❙
There will be many new entrants
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The bargaining power of buyers is likely to increase
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There will be more substitute products and services
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The bargaining power of suppliers may decrease
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The number of industry competitors in one location
will increase
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Cost Curves
Quantity
Cost
per

unit
Optimal
Regular Products
Cost
per
unit
Quantity
Digital Products
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The Need for a Critical Mass of Buyers
❚
Reasons for the need for critical mass of buyers
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Fixed cost of EC is high, need many customers to cover it.
❙
Strong and fair competition can be developed
❚
Estimated Internet users worldwide :
❙
150-200 million range (1999)
❙
Small number as compared with an estimated 1.3 billion TVs
❚
No need to wait a few years before starting EC
❙
Look at the microlevel segmentation of the market you are
trying to reach
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Quality Uncertainty and Quality
Assurance
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Price is becoming the major factor influencing
many Web purchases
❚
Quality is extremely important in many situations
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Issue of quality is related to issue of trust
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Quality assurance by a trusted 3
rd
party is needed
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For example : Trust-e and Better Business Bureau (BBB)
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Quality Uncertainty and Quality
Assurance (con t.)
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Solutions for quality uncertainty
❙
Provide free samples
❘
clear signal that the vendor is confident about the quality
❙
Return if you are not satisfied
❘
providing a guarantee, or a full refund, for dissatisfied
customers is facilitating EC

❘
returns not feasible for digital products
•
many digital products such as information, knowledge, or
educational material, are fully consumed when they are viewed
by consumers
•
returning a product or refunding a purchase price may be
impractical due to transaction costs
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Pricing on the Internet
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Price Discovery
❙
Electronic marketplaces enable new types of price
discovery
❘
Web-based auctions at Onsale.com and eBay.com
❘
Intermediaries such as Priceline (www.priceline.com)
❘
Agents such as Kasbah (ecomerce.medis.mit.edu/kasbah)
The ability to
customize
products
The ability to
price
discriminate
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Online Vs. Offline Pricing
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How to price the online Vs. the offline products or
services
❘
Pacific Brokerage Services (www.tradepbs.com)
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a discount broker
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offered almost 50% commission discount for online services
❘
Banking Industry
•
most do not offer any discounts for going online
•
some even charge additional online fixed monthly service fee
•
some, whose strategy is to aggressively go online, provide discount
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Retailers
•
no clear strategy
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Contributors to Electronic Market
Success
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Product characteristics
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Digitizable products; low priced items; computers;
electronics, consumer products; and even cars
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Industry characteristics
❙
The need for a transaction broker exists (e.g.,
stocks)
❚
Seller characteristics
❙
In oligopolistic situations, sellers can maintain an
environment of lower volume, higher profit margin
transactions
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Consumer characteristics
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Patient and analytical consumers
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Impacts on Industry Structure
Seller 1
Seller 1
Seller 1
Customer
Product Distribution Network
Market Information
Exchange
Information
Product
Traditional Market Industry Structure

❚
Traditional market
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Customers search out information (about the
products available and their prices, quality, and
features) from a wide range of sources
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Impacts on Industry Structure (cont.)
❚
Electronic markets
❙
The search cost for consumers is reduced
❙
Consumers can buy products for lower prices,
intermediaries play new roles
Product Distribution Network
Seller 1
Seller 1
Seller 1
Customer
Electroni
c Market
Industry Structure with an Electronic Market
Information
Product
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The Roles and Value of Brokers in
Electronic Markets

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Search costs for finding partners—high
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Lack of privacy; can not remain anonymous
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Incomplete information; a broker can get
more
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Contracting risk of refusing to pay, poor
quality products, etc.
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Pricing inefficiencies, opportunities may be
missed
Limitations of Privately Negotiated Transactions
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Potential Winners and Losers in EC
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Proprietary network owners
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Midsize manufacturers
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Technology suppliers
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Market makers
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Online dedicated companies
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Conventional retailers that use online extensively
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Providers of diversified Internet services
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Advertisement and target marketing companies
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Security, special infrastructure, and payment systems providers
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Internet access providers
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Portal providers
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A few large resellers
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EC software companies
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Winners
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Most wholesalers, especially small ones
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Brokers
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Salespeople
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Non-differentiated manufacturers
Potential Losers in EC
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Virtual Communities
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The Internet Communities
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Web is being transformed into a social Web of communities
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Types of communities
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Communities of transactions
•
facilitate buying and selling
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Communities of interest
•
place for people to interact with each other on a specific topic
❘
Communities of relations
•
be organized around certain life experiences
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Communities of fantasy
•
place for participants to create imaginary environments
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Virtual Communities (cont.)
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Ways to transform a community site into a
commerce site:
Understand a particular niche
industry, its information needs,
and the step-by-step process by

which it does the research
needed to do business.
Build a site that provides that
information, either through
partnerships with existing
publishers and information
providers or by gathering it
independently.
Set up the site to mirror the steps
a user goes through in the
information-gathering and
decision-making process.
Build a community that relies on
the site for decision support.
Start selling products and services, such as sample chips to engineers,
that fit into the decision-support process.
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Virtual Communities (cont.)
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The Expected Payback
❙
Customer loyalty increases
❙
Increased sales
❙
Customer participation and feedback
increases
❙
Increased repeat traffic to site

❙
Drive new traffic to the site
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Virtual Communities (cont.)
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Creating economic value
❙
Members input useful information in the form of
comments, feedback, elaborating their attitudes
and beliefs, and information needs of the
community
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The community brings together consumers of
specific demographic and interest
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Communities charge members content fees for
downloading certain articles, music, or pictures