Economics and Electronic Commerce:
Review and Framework for an Emerging Literature
by
Robert J. Kauffman and Eric A. Walden
Carlson School of Management
University of Minnesota
March 28, 2000
Eric Walden
Available online at http://eric.aKINDofMAGIC.com
The Study
Review of 300 pieces of research
Sources include
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published papers
conference papers
working papers obtained from personal
requests
Eric Walden
Interdisciplinary Approach
Information Systems served as core
literature
Relevant disciplines include
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Economics
Finance
Marketing
Computer Science
Strategy
Eric Walden
Framework
Eric Walden
Technology Level Issues
Business Problem
Relevant Theories
Network Pricing
Public good theory,
Utility theory
Intelligent Agents
Game theory,
Agency theory
Efficient Search
Optimization, CostBenefit Analysis
Eric Walden
Ongoing Technology Issues
Efficient Search (Collaborative filtering,
Information overload)
Transmission speeds have not increased as
quickly as processing power, but new
developments in multicasting and fiber
optics will speed up transmission – how will
this influence the internet
What will the effects of XML be on the
ability of firms to conduct business over the
internet
Eric Walden
Product Level Issues
Business Problem
Relevant Theories
Information Goods
Versioning, Bundling
Pricing
Switching costs,
Lock-in, Economies
of scale and scope
Standards
Network
externalities
Eric Walden
Ongoing Product Issues
In what cases do “new economics of the
Internet” apply? Zero marginal cost,
increasing returns to scale
How do customers evaluate products? How
important is convenience, ability to search,
need to touch?
Do customers recognize Lock-in, and how do
they react to uncertainty?
Two types of search costs – within site vs.
across sites
Eric Walden
Business Process Level Issues
Business Problem
Relevant Theories
Supply Chain
management
Competitive
advantage
EDI
Game theory,
Allocation theory
Joint Action
Incomplete
contracts,
transaction costs
Eric Walden
Ongoing Business Process Issues
What types of business models will
develop
How to integrate internet channel with
traditional channel
How to quantify the gains from
internet business process
Interorganizational coordination
and integration
Eric Walden
Market Level Issues
Business Problem
Relevant Theories
Technostructure
Market design,
Market
microstructure
Disintermediation
Game theory,
perfect competition
Auctions
Auction Theory,
Game Theory
Eric Walden
Ongoing Market Issues
Network externalities at the market level –
which standards are followed and how is
adoption encouraged
Strategic behavior in auctions – are
consumers different than business auction
participants
Market microstructure – what elements are
needed to make electronic markets work
Trust – how to engender trust to enable
electronic markets to function properly
Eric Walden
Macro Level Issues
Business Problem
Relevant Theories
Taxation
Public good theory,
Growth and
Development
Regulation
Monopoly theory,
Agency theory
Skilled Labor
Labor economics,
Economics of search
Eric Walden
Ongoing Macro Issues
How do other countries catch up
G2B and G2C commerce (i.e.
Government to Business or Consumer)
Small business survival vs. large
business
Digital Divide
Eric Walden
Implications for Practice
New Economics is just Old Economics
from a different perspective
Economic analysis provides a useful
theoretical base
– Conceptualizing electronic commerce
– Solving business problems in electronic
commerce
Wide range of expertise available
Eric Walden
Implications for Research
Future work will need to be interdisciplinary
including marketing, operations, strategy,
economics, computer science, and MIS
Electronic commerce has implications at a
variety of levels of analysis from technology
to the global macro economy
Focus should be on understanding within
specific domains
– The new economics is not one economics, but
many economics each with its own new twist on
the old economics
Eric Walden