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Dr. Michael D. Featherstone

Spring 2011

Introduction to e-CommerceWeb Markets

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Web Markets

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.

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Village

County

Country

International

Global

Electronic

PHYSICAL

VIRTUAL

Web Markets

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Web Markets

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Web Markets

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).

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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?

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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?

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Thank you for your attention

This Concludes the Web Markets Presentation