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Economics, Global, and Other Issues in Electronic Commerce

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Identify the major impacts of Web-based economics ... Analyze the impact of online markets on competition. Describe the impacts and industry structure on ... – PowerPoint PPT presentation

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Title: Economics, Global, and Other Issues in Electronic Commerce


1
Economics, Global, and Other Issues in
Electronic Commerce
2
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

3
Marketplace Vs. 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

4
Marketplace Vs. 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

5
Components of E-Economics
  • Digital Products
  • The Consumers
  • The Sellers
  • The Infrastructure Companies
  • The Intermediaries
  • The Support Services
  • Content Creators

6
Competition in E-Commerce
  • Impacts on competition
  • Lower buyers search cost
  • Speedy comparisons
  • Differentiation
  • Lower price
  • Customer service
  • Digital products lack normal wear and tear

7
Competition in E-Commerce
  • 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

8
Competition in E-Commerce
  • Observations regarding competitiveness
  • There will be many new entrants
  • The bargaining power of buyers is likely to
    increase
  • There will be more substitute products and
    services
  • The bargaining power of suppliers may decrease
  • The number of industry competitors in one
    location will increase

9
Cost Curves
Cost per unit
Cost per unit
Optimal
Quantity
Quantity
Regular Products
Digital Products
10
The Need for a Critical Mass of Buyers
  • Reasons for the need for critical mass of buyers
  • Fixed cost of EC is high, need many customers to
    cover it.
  • Strong and fair competition can be developed
  • Estimated Internet users worldwide
  • 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

11
Quality Uncertainty and Quality Assurance
  • Price is becoming the major factor influencing
    many Web purchases
  • Quality is extremely important in many situations
  • Issue of quality is related to issue of trust
  • Quality assurance by a trusted 3rd party is
    needed
  • For example Trust-e and Better Business Bureau
    (BBB)

12
Quality Uncertainty and Quality Assurance (cont.)
  • 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

13
Pricing on the Internet
  • 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/kasb
    ah)

14
Online Vs. Offline Pricing
  • How to price the online vs. the offline products
    or services
  • Pacific Brokerage Services (www.tradepbs.com)
  • a discount broker
  • 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
  • Retailers
  • no clear strategy

15
Contributors to Electronic Market Success
  • Product characteristics
  • Digitizable products low priced items
    computers electronics, consumer products and
    even cars
  • 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
  • Consumer characteristics
  • Patient and analytical consumers

16
Impacts on Industry Structure
  • Traditional market
  • Customers search out information (about the
    products available and their prices, quality, and
    features) from a wide range of sources

Traditional Market Industry Structure
17
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

Industry Structure with an Electronic Market
18
Winners and Losers in EC
  • Winners
  • Proprietary network owners
  • Midsize manufacturers
  • Technology suppliers
  • Market makers
  • Online dedicated companies
  • Conventional retailers that use online
    extensively
  • Providers of diversified Internet services
  • Advertisement and target marketing companies
  • Security, special infrastructure, and payment
    systems providers
  • Internet access providers
  • Portal providers
  • A few large resellers
  • EC software companies

19
Potential Losers in EC
  • Most wholesalers, especially small ones
  • Brokers
  • Salespeople
  • Non-differentiated manufacturers

20
Virtual Communities
  • The Internet Communities
  • Web is being transformed into a social Web of
    communities
  • Types of communities
  • Communities of transactions
  • facilitate buying and selling
  • Communities of interest
  • place for people to interact with each other on a
    specific topic
  • Communities of relations
  • be organized around certain life experiences
  • Communities of fantasy
  • place for participants to create imaginary
    environments

21
Virtual Communities (cont.)
  • Ways to transform a community site into a
    commerce site

Build a site that provides that information,
either through partnerships with existing
publishers and information providers or by
gathering it independently.
Understand a particular niche industry, its
information needs, and the step-by-step process
by which it does the research needed to do
business.
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.
22
Virtual Communities (cont.)
  • The Expected Payback
  • Customer loyalty increases
  • Increased sales
  • Customer participation and feedback increases
  • Increased repeat traffic to site
  • Drive new traffic to the site

23
Virtual Communities (cont.)
  • Creating economic value
  • Members input useful information in the form of
    comments, feedback, elaborating their attitudes
    and beliefs, and information needs of the
    community
  • The community brings together consumers of
    specific demographic and interest
  • Communities charge members content fees for
    downloading certain articles, music, or pictures

24
Global Electronic Commerce
  • While geographical market boundaries may be
    falling, global interest-based communities will
    spring up
  • Mainly in support of business-to-business
    financial and other repetitive, standard
    transactions, e.g. EFT EDI
  • The emergence of the Internet and the extranets
    resulted in an inexpensive and flexible
    infrastructure that can greatly facilitate global
    trade

25
Barriers to Global Electronic Commerce
  • Legal Issues
  • Uncoordinated actions must be avoided and an
    international policy of cooperation should be
    encouraged
  • Market Access Issues
  • Companies starting e-commerce need to evaluate
    bandwidth needs by analyzing the data required,
    time constraints, access demands, and user
    technology limitations
  • Financial Issues
  • Customs and taxation
  • electronic payment systems

26
Barriers to Global Electronic Commerce (cont.)
  • Other Issues
  • Identification of buyers and sellers
  • Trust
  • Security ( for example, viruses)
  • Cultural diversity
  • International agreements (multi-lateral
    agreements)
  • Role of government
  • Purchasing in local currencies
  • Language and translation

27
The U.S. Policy RegardingGlobal Electronic
Commerce
  • The private sector should lead
  • Governments should avoid undue restrictions on
    electronic commerce
  • Where government involvement is needed, its aim
    should be to support and enforce a predictable
    minimalist, consistent and simple legal
    environment for commerce
  • Governments should recognize the unique qualities
    of the Internet
  • Electronic commerce on the Internet should be
    facilitated on a global basis

28
Managerial Research Issues
  • Advertisement
  • measuring the effectiveness, integration and
    coordination
  • Applications
  • creating a methodology of finding EC business
    applications
  • Strategy
  • designing strategic advantage strategy for EC
  • initiating Where to market strategy
  • finding way to Integrate EC into organizations
  • Impacts
  • identify the necessary organization structure and
    culture
  • integration with ERP and SCM
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