1 Dr. Michael D. Featherstone Spring 2011 Introduction to e-Commerce Web Markets

2 Companies must adopt electronic markets now if they hope to compete in the future. Kambil and Heck “Making Markets” Harvard Business Press What is a Market? A market is a mechanism which allows people to trade, normally governed by the theory of supply and demand, allocating resources through a price mechanism and bid and ask matching so that those willing to pay a price for something meet those willing to sell for it. In some fields of study, a market is assumed to be only this mechanism.

3 Village County Country International Global Electronic PHYSICAL VIRTUAL Web Markets

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5 The "virtual" part eliminates the market-friction caused by the barriers of: time (a customer can buy products 24 hours a day, 365 days a year) geographic location (from anywhere in the world) form (for a growing list, atoms can be replaced by bits in delivering goods and services). No longer does a company need to have a physical presence to enter a new market. No longer are customers required to do business during normal business hours. Products often can make the leap from atoms (a compact disk, a software program, a bank statement, a check, or an airline ticket) to bits (MP3 audio, downloadable software programs, online financial statements and payments, or e-tickets).

6 Web Markets Price elasticity Price Transparency Search cost Customer Switching cost Cost Barriers to Market Entry WHAT IMPACT WILL E-MARKETS HAVE ON THESE MARKET ATTRIBUTES?

7 Web Markets Price elasticity Price elasticity of demand (PED) is an elasticity used to show the responsiveness of the quantity demanded of a good or service to a change in its price. More precisely, it gives the percentage change in demand one might expect after a one percent change in price. It was devised by Alfred Marshall. Price Transparency The ability of economic agents to compare the price of given products in different countries Search cost Rational consumers will continue to search for a better product or service until the marginal cost of searching exceeds the marginal benefit. Search theory is a branch of microeconomics that studies decisions of this type. Customer Switching cost The costs incurred in changing from one provider of a product or service to another. Switching costs may be tangible or intangible costs incurred due to the change of this source. Cost Barriers to Market Entry Barriers to entry are those things that make it difficult for a new company to compete against companies already established in the field. Examples include such things as patents, trademarks, copyrighted technology, and a dominant brand. WHAT IMPACT WILL E-MARKETS HAVE ON THESE MARKET ATTRIBUTES?

8 Web Markets It must be considered that there is nothing more difficult to carry out, nor more doubtful of success, nor more dangerous to handle, than to initiate a new order of things. For the reformer has enemies in all those who profit by the old order, and only lukewarm defenders in all those who would profit by the new order, this lukewarmness arising partly from fear of their adversaries, who have the laws in their favour; and partly from the incredulity of mankind, who do not truly believe in anything new until they have had the actual experience of it.''

9 Thank you for your attention This Concludes the Web Markets Presentation