2.
2 E-Markets
2.2.1 Physical and Electronic markets
“The Internet marketplace may never replace the physical marketplace, but it may have far-reaching
effects on it…and may introduce a variety of changes to the traditional physical marketplace
transaction. Only at the limit, when the Internet channels of communication substitute fully for physical
channels of communication, does Internet commerce threaten the existence of physical retailers”
Bailey (1998)
An EM is an inter-organizational information system that allows buyers, sellers, independent third
parties, and multi-firm consortiums to exchange information about prices and product offerings
(Mahadevan, 2000).
With the beginning of the EMs two types of markets can be assessed: Physical and Electronic. Both
these markets have the same three main functions (Bakos, 1998):
Matching buyers and sellers;
Facilitating the exchange of information, goods, services, and payments associated with a
market transaction;
Providing an institutional infrastructure, such as a legal and regulatory framework which
enables the efficient functioning of the market.
EMs executes much more efficiently these functions because they extend the matches possibility
between buyers and sellers, simplify the process of buying and of presenting proposals and perform
worldwide without boundaries. Regardless all these advantages, EMs cannot fully threaten physical
markets because of the need of physical communication channels.
Beyond the differences at a market function level, from an economics perspective, EMs have
fundamental differences regarding physical markets (Bichler,2001): Transparency, Size, Cost.
EMs have a bigger transparency than Physical Markets because the several market participants can
observe all the trading process from end-to-end. From a size perspective, EMs are not circumscribed
by the normal boundaries that physical markets face, allowing a wider potential of trading possible to
full fill worldwide. Finally from a cost approach, EMs are able to reduce the transaction costs and to
eliminate intermediates.
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To emphasis the current use of EMs, in Figure 3 is displayed a chart where it is possible to observe
that in 2007, on average, firms of OECD with more than 10 employees used the Internet for 33% of
their purchasing and 17% of their selling.
Figure 3 – Businesses selling/purchasing over the Internet - 2007 (OECD, 2008)
2.2.2 Electronic Markets Benefits
“The electronic marketplace opens doors from Wall Street to Khartoum to downtown Tokyo, making
them no more distant than if they were around the corner.” Leebaert (1999)
Baker (2000) and Hartman, et.al (2001) separated the major benefits of EMs in three groups of
drivers:
Process improvements;
Cost reductions;
New business generation.
Siegelmann et al. (1996) and Feldman (2000) have a different approach (buyer/supplier) to the EMs
benefits:
Buyer advantages:
– Access to more information; structured and stored in one place, so that they support
consumers decision making processes;
– Easier market research and comparison;
– Consumers can conduct their researches anytime and anywhere: Some EMs include online
product sampling (i.e. book excerpts, CD recording samples and so on);
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– Lower costs (because of information system usage), lower prices and higher quality (higher
competition among suppliers), and wider selection of goods (aggregating significant number of
vendors).
Supplier advantages:
– Improved economic efficiency: reducing margins between price and costs, speeding up
complicated business deals;
– Better distribution: no middlemen and shrinking distribution channels;
– Possibility to gather more customer information;
- Marketing communications: allowing competing on other dimensions than only price;
- Operational benefits: which include reduced errors, time and overhead costs in information
processing, easier entry into new markets (especially geographically remote) and faster time to
market.
The adoption of EMs allows an important number of WIN-WIN situations both to buyers and suppliers.
Buyers and suppliers benefit from process improvement and new business models can be created at
virtually no extra-cost. Buyers have cost reductions benefits. However, with EMs, suppliers can face a
shrinking of their margins due to a more competitive and open market.
EMs also have some disadvantages as technological investment in infra-structures is required, issues
related to security/privacy of data and finally legal questions related with EM that perform worldwide,
Kowalkiewicz (2004).
2.2.3 Business dimensions of Electronic Markets
“EMs dimensions have plenty of sub-dimensions!”
Anonymous,2009
According to Thorelli (1986), Elofson et.al (1998), Lief (1999), Kaplan, et. al (1999), Sculley, et. al
(1999), and Hartman (2001) EMs can be segmented along six dimensions:
Business model;
Order processing mechanism;
Revenue model;
Market characteristics;
Product specifics;
EMs services.
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