Electronic Commerce, 7th Edition
Solutions 6-1
Electronic Commerce, 7th Edition
14188-37032
Chapter 6 Solutions
Review Questions
1. In approximately 100 words, define the term “reserve price” and explain
how the use of a reserve price can affect the progress and outcome of an
auction.
Answer: A reserve price is a minimum; even though the bid may start at a very low
price, there will be no winner unless the bids reach a reserve price set by the seller. If
the reserve is set too high, no one may win the auction.
2. Identify an industry (or a product within an industry) in which buyers would
find reverse auctions to be a useful procurement tool. In about 300 words,
explain why your chosen industry or product would be a good candidate for
a reverse auction procurement process.
Answer: One industry that may be considered is the construction industry where
bidders are invited to offer value engineering, innovations, and alternate design ideas
that could save money over the life cycle of a project.
3. In about 300 words, describe the services offered by an online auction escrow
service. Name one advantage and one disadvantage of using this type of an
escrow service.
Answer: An escrow service will hold the buyer’s funds until the buyer has received
the merchandise and is satisfied; this is primarily used for high ticket items. The
advantage to the buyer is that they can be sure they are getting what they paid for in
the auction. The disadvantage is that a buyer can be dissatisfied about almost
anything and the seller must wait for a decision.
4. Some eBay users believe that the use of sniping software is unfair and that
eBay should prohibit its use. In an essay of about 200 words, present facts
and logical arguments that would convince eBay to prohibit the use of
sniping software.
Answer: Responses will vary but you should consider the advantages of sniping on
auctions. The first is that the sniper prevents counter-bids and is more likely to win
the auction. The most significant advantage is that sniping prevents emotional bidding
wars.
Electronic Commerce, 7th Edition
Solutions 6-2
5. Assume you work in the procurement department of a small aerospace parts
manufacturer. Your company builds switches and relays used in airplanes to
control heating and ventilation systems. The parts your company buys must
meet precise specifications and the parts are not generally interchangeable;
that is, your company’s engineers must work with your suppliers to design
specific parts for particular systems. The director of procurement has read
about online reverse auctions and is interested in exploring the idea. In
approximately 300 words, outline the arguments for and against using online
reverse auctions at this company, then conclude with a specific
recommendation.
Answer: Responses may vary but may include the following:
Advantages
 Achieving a competitive market price, and substantial cost savings through
dynamic and real-time trading
 The process uncovers high quality and globally competitive suppliers
 Gaining better knowledge of the market
 Reducing administrative and transaction costs for both buyer and supplier
Disadvantages
 Relatively new process with no proven history
 Reverse auctions focus mainly on price
 Unsuitable for purchasing products with “value added” services
6. The future of mobile business depends on finding ways to combine wireless
technologies and the Internet. To be successful, these applications must use
the most convenient features of both wireless and Internet technologies. In
about 300 words, outline a revenue model for a business that sells frequently
updated restaurant reviews. Be specific about which parts of the business
would use wireless technologies and which parts would use Internet
technologies.
Answer: Answers will vary, but parts of the business that could use wireless
technologies include delivery of restaurant reviews to cell phones, PDAs, and
wireless laptops. Wireless technologies could also be used to deliver alerts to
subscribers when specific reviews are updated. Customers could use wireless
technologies to manage account information.
Parts of the business that would use Internet technologies could include database
server services, online billing services, advertising, and Web delivery of restaurant
review content.
Electronic Commerce, 7th Edition
Solutions 6-3
Exercises
1. Use the Online Companion to examine the projects list at either the MIT
Software Agents Group Projects site or the Carnegie Mellon Intelligent
Software Agents Lab site. Choose a software agent technology used in one of
these projects and, in approximately 200 words, describe how you could use
it in an electronic commerce application.
Answer: Answers will vary, but should include notes on navigation guides and buying
and selling agents. If they used information from a navigation guide, the students
should discuss how this guide will make a site more user-friendly.
2. Midland University, like most metropolitan universities, faces a chronic
shortage of parking spaces on campus. Each stakeholder group in the typical
university community (these groups include students, faculty,
administrators, staff, and visitors) believes its members should have the top
priority for parking spaces. You have been assigned to a university task force
to study the problem. You decide that an annual online auction of parking
spaces conducted on the university’s intranet could provide a solution. In
about 300 words, describe the elements of an annual online auction for
parking spaces at Midland University. Be sure to include provisions for
disabled persons and for those university employees who do not have regular
access to computers in their typical work environment (such as janitors,
physical plant maintenance workers, or gardeners).
Answer: Responses will vary but students could consider a variation of the English
auction where each stakeholder group submits a bid. The group with the winning bid
would then be assigned the highest priority and would then be able to choose its
“block” of parking spaces.
3. Follow the links in the Online Companion for Auction Consignment Sites to
at least two of the sites and become familiar with the services they offer.
Prepare a chart that compares the services offered by two of the sites you
visit. Include any important factors that a customer would evaluate when
deciding which site to use, but be sure to include a comparison of prices,
specific services offered, exclusions and limitations on the services, and
guarantees, if any. Summarize your findings in a paragraph or two in which
you indicate which site you would recommend to a friend.
Answer:
Responses may be similar to the following:
Auction Consignment Sites
www.auctiondrop.com
www.picitsold.com/
 Offers the convenience of over
 Takes high-quality pictures of the
Electronic Commerce, 7th Edition
3,400 drop-off locations
nationwide.
 Operates a large-scale processing
center staffed with professional
photographers, researchers
specializing in a wide range of
items, and skilled shippers — all
working together to deliver
detailed, accurate listings and
superior service.
 Provides both buyers and sellers
with a dedicated customer service
department offering outstanding
personalized service 7 days a
week, by email or phone.
AuctionDrop's commission is based
on your item's final sales price, as
follows:
38% of the first $200
30% of the next $300 ($200.01-$500)
20% of the remaining amount (over
$500)
($19.99 minimum commission)
Special quotes for items estimated to
sell at more than $5000
Solutions 6-4
item
 Designs an attractive and
informative listing
 Stores the item in a secure location
 Answers buyer questions
 Processes payment
 Packs and ships to the lucky winner
 Send you a check in the mail!
If your item sells, Picture it SOLD! uses
the following commission structure:


38% of the first $500
28% of the remaining amount
($500.01 and up)
4. Use mySimon, Best Web Buys, or another Web pricing robot of your choice
to find sources for a book or CD that you want to buy. Evaluate the results
provided by the robot in terms of how useful the robot was in helping you
plan for your purchase. Summarize your findings in a report of
approximately 200 words.
Answer: Answers will vary, but students should discuss the listing of products and
how they can often list in terms of descending price or by store. Yahoo! allows you to
sort by price and then shows the Yahoo! rating of the stores that carry the product.
5. You have been hired as an electronic commerce consultant to Oyster Bay,
Inc., a dealer in ocean-going yachts. Oyster Bay maintains offices and
marinas in major U.S. East Coast ports. The typical purchaser of an Oyster
Bay yacht is a high-income business executive, a retiree, or a person of
significant inherited wealth. Oyster Bay salespeople have noted that their
customers are increasingly aware of the Web. Prepare a proposal for an
Oyster Bay Web portal site. You do not need to design the Web pages, but
your proposal should include a detailed list of features that will be included
in the site design. Describe each feature in detail, and explain why you
Electronic Commerce, 7th Edition
Solutions 6-5
believe it should be included. For each feature, note whether it will be
supplied by Oyster Bay personnel or purchased from an outside supplier. To
learn more about existing yacht sales sites, you can use your favorite search
engine or consult the Carver Yachts, Moran Yacht & Ship, and
YachtWorld.com links in the Online Companion.
Answer: Responses will vary, but should include pictures of some of the yachts,
personnel, different departments, as well as accessories and parts from Oyster Bay as
well as links to other suppliers and vendors.
6. In the chapter, there is a discussion of the stickiness of Web sites that have
many visitors. InterActiveCorp is a company that often appears on lists of
sites that have a large number of visitors or sites that have a high degree of
stickiness. Visit the company’s site and explore it to learn which Web sites it
owns. List the names of the two InterActiveCorp sites that you believe have
the highest degree of stickiness and, in about 150 words, explain why.
Answer: Sites to be considered include:
 Hotwire.com: Stickiness features include flights, hotels, car rentals and
packages.
 Match.com: Stickiness features include profiles and email.
Cases
Case 1: Alibaba.com
1. Answers may vary, but possible explanations for the lock-in effect include:
registration with Alibaba.com involves a significant contribution of time and money.
Once a company has gone through this process and learned how to operate in the
Alibaba.com system, they may be reluctant to start over with a new competitor. Also,
once international businesses have established working relationships with specific
SMBs in China, they may be reluctant to restart the process with unknown
businesses.
2. Answers may vary, but likely reasons the site has different listing charges for the two
types of members include: the demand for the service is higher in China, so
Alibaba.com charges the fee that each market will support. Also, because there are a
very large number of small and medium SMBs in China, setting a high listing fee
may help insure that registered SMBs are financially sound, committed companies.
Individual opinions on this practice may vary. Some may consider it exploitive and
unfair to charge twenty times more for China Gold Supplier status. Alibaba.com
appears to have few competitors, and may be considered to be taking advantage of
Chinese SMBs. On the other hand, some may think it makes sound business sense to
Electronic Commerce, 7th Edition
Solutions 6-6
charge each member type the maximum amount each market will support. It is
possible that the potential profits for successful Chinese SMBs could outweigh the
annual fee significantly, while the cost savings to foreign sellers is proportional to
their lower listing fee.
3. Answers may vary, but the general scenarios for Alibaba.com to become an
intermediary in relationships between Chinese SMBs and large global companies
would include Alibaba.com charging both for services to negotiate supplier contracts
on behalf of Chinese SMBs and also offer for a fee any services required of the
contracts that the SMBs may not be able to provide themselves.
4. Answers may vary, but some advantages Alibaba.com might have over eBay in the
Chinese market include targeted cultural knowledge, established local business
infrastructure, lack of need to translate Web content and business/legal practices to a
foreign market.
Some disadvantages Alibaba.com might have compared to eBay include weaker
brand identity, entering a new market already dominated by established competitors,
less working knowledge of the consumer online auction market, and cost of
developing consumer auction systems and Web code.
5. Answers will vary, but possible ways in which Alibaba.com’s reputation could help
Yahoo! compete more effectively as a search engine and Web portal in China
include: Chinese Internet users may be more comfortable accessing the services of a
company with a strong established Chinese reputation. Also, Alibaba.com staff and
business practices are likely much more familiar with and more effective in
addressing unique issues in offering Internet services in China.
Case 2: Old Metamora
1. Answers may vary, but should emphasize elements unique to the competing store
models that would provide special benefits to Betty's business. Examples would
include: existing robust community of collectible vendors, limited existing
competition from other collectible glass figurine vendors, optional transaction
insurance for fragile items, email management services, shipping services, easily
scalable account options to account for store growth, and lack of a minimum
transaction requirement to accommodate times when business at the physical store is
most busy.
2. Answers may vary, but should address each of Betty's stated goals: contain photos
and descriptions of popular crystal figurines with additional information about how
they are made, include a list of figurines that are no longer manufactured, include a
guide to buying collectible crystal figurines, and direct site visitors to her auctions
and her proposed Web store. Elements used to implement these goals should be
Electronic Commerce, 7th Edition
Solutions 6-7
designed with the collectible glass figurine community in mind, and any potential
difficulties implementation of the element may provide should be discussed.