Arrow Electronics Key Issues January 2000 BA 266: 2

Divergent Interests Electronic markets will diminish market price spreads Reduction of price spreads allows less room for seller maneuvering and price discrimination The closer are product characteristics, the larger the buyers, the greater is divergence of interests E-markets have the potential to reduce market prices, seller profit margins substantially by removing market uncertainty This is not always in the interest of buyers

Value Added from E-Markets Reduce transaction costs E-markets may substantially enhance range of buyers and sellers that can be reached E-markets reduce search cost, especially for products with with diverse components Larger markets have greater attraction Reduce role of long term relationships

Potential Impact upon Arrow Restructure its market models – Current model turns market prices upside down – Margins for standard products ought be less than for those for which value-added services are provided – Buyers will learn more clearly Reduce closeness of association between Arrow and suppliers in working with buyers Open potential for disintermediation E-markets promise the potential for dramatic change

E-Market Framing The success of an e-market, absent strong buyer pressure, relates to the extent that the framing fits expected user needs E-markets are fit simplest market needs – Clear identification of product – Clear identification of price – The presence of complex value-added services limits the viability of the market