Economics and E-Commerce

Abstract

The Internet offers new ways of bringing consumers and businesses together for commerce. These are examined in a series of papers spread over two sessions in this mini-track. The range of issues examined run from entirely new forms of commerce such as dynamic group buying discounts to a reexamination of market power in electronic retailing.Dynamic discounting based on group size of current buyers is a form of commerce that would be hard to implement without the Internet. Vendors post a declining price schedule on the web and the buyers can see the decrease in price as more of them commit to a purchase. This in turn may attract more buyers and in the end, all the participants end up getting a discount. Kauffman and Wang examine this innovative market using theoretical and empirical modeling. Among other results, they find a significant participation externality effect - the number of existing orders has a significant positive impact on the number of orders placed in the subsequent three-hour period. This is like the liquidity effect in financial markets and is a significant finding.The next paper by Bapna, Goes and Gupta also focuses on multi-item sales. They examine the multi-item Yankee auction in which each winning bidder pays his/her bid. While this auction is widely used in online and offline settings, it is hard to model theoretically, and consequently, it is hard to design one to maximize revenue. The authors take a new tack of building a simulation model that is calibrated using observed data. The calibrated model is then used as a tool to design the auction.With all these new models of commerce available to online retailers, the market power conferred to retailers by the Internet is of immediate interest to all market participants. In their paper on measuring the market power in e-retailing, Bandyopadhyay and Chaturvedi develop a model of retailing that includes the conventionally used metrics of retailing success such as the Lerner Index and augment it by details only available in an online setting - click through rates, unique audience, etc. They correlate these online metrics to a proxy of market power and find that click through rates and length of visit are among the variables that are positively related.Adoption of Electronic commerce by small and medium size enterprises (SME) is examined in the first paper in the second session of this mini-track. Despite the availability of new forms of commerce online and market power conferred to firms that are successful in e-commerce, not all SME adopt these new technologies nor are they all successful. The authors find that three of the five attributes of innovation proposed by Rogers, namely, relative advantage, compatibility and trialability are correlated with SME's willingness to adopt these new technologies.The next two papers in this session examine online strategies in detail. Search engines have changed the way in which potential customers and vendors interact. They have become vital parts of business to consumer and business-to-business ecommerce. The impact these search engines have on the underlying markets for goods and services depends on how the engines are organized and who owns them. Dewan, Freimer and Nelson show that under certain circumstances, a vendor may prefer to have a search engine owned by a competitor than by a third party. For instance, the airlines would prefer to have a site that searches for flights by them rather than a third party such as Microsoft. The last paper highlights the difference between market for information goods, such as software, music, etc., and other goods. While creating variations of products for goods like cars increases profits, a similar strategy for information goods may not work. Bhargava and Choudhary expand on the work done by others to identify more closely the circumstances when such second-degree price discrimination in markets for information goods may be beneficial.