Traditional Market & Digital Market

* This article has been accepted for publication and is forthcoming in the Handbook on Electronic Commerce, Springer-Verlag, 1999. Do no distribute or reference without author permission. © Strader, 1998.

Electronic Markets: Impact and Implications

Troy J. Strader and Michael J. Shaw

Department of Management, Iowa State University, Ames, IA, USA

tstrader@iastate.edu

Department of Business Administration, and Beckman Institute for Advanced Science and Technology, University of Illinois at Urbana-Champaign, Urbana, IL, USA

m-shaw2@uiuc.edu

In this chapter we survey the economic impact of electronic markets (e-markets). We identify and analyze examples of e-markets, the impact of e-markets on the structure of industries, buyer and seller cost differences for traditional and electronic markets, revenue source implications for sellers and transaction intermediaries, and determinants of e-market success. The overall issue addressed is whether there are economic incentives for electronic markets, or are they just a passing fad?

(Electronic Markets; Transaction Cost Economics; Information Economics; Industry Structure; Consumer Behavior; Business Strategy)

1. Introduction

Commercial transactions have taken place for centuries, but currently there is a revolution taking place that is transforming the marketplace. This transformation is occurring because the relationship between organizations and consumers is increasingly being facilitated through electronic information technology (IT). This is generally referred to as electronic commerce (e-commerce), with a major component of e-commerce being electronic markets (e-markets). The number of products available on-line is growing steadily, but not enough is understood about this rapidly evolving phenomenon. In 1996 the number of losers exceeded the number of winners by 2 to 1 for Internet commercial ventures (Rebello et al., 1996). A question that arises from the current growth of electronic...