Bias of Internet Commerce
juraj hudec
h9950816
electronic commerce
overview
• IT: a “helping hand” in information gathering,
analyzing and processing
• e-commerce pioneered already in mid ’50
(1st commercial airline reservation system ’58)
• mid ’90 => “Internet commerce” (rapid
adaptation of PCs and accessibility of Internet)
• B2B accounts for 80% of e-commerce
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Internet boom
• fastest growing communication phenomenon
• Internet traffic doubles every 100 days
• over 50 million domains registered
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the need for speed
• webpage => gateway to company’s brand and
services even if the firm is not selling online
• volume of electronic transaction
• multimedia rich webpages
• side effect: many new services
- music on demand (iTunes)
- on-line gaming
- video on demand (2005)
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dot-com bubble
going public
• fund raising through IPO
• a dedicated trading floor = NASDAQ
• investors => mostly venture capital
• no profits, no dividends and promises only
=> capital outflow
• stock prices fell dramatically
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case study: Priceline Inc.
• business model => “name your own price”
• stock price from $160 to $1.06 per share in Dec. 2000
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reinventing dotcoms
• successful companies Yahoo!, Amazon, eBay, Google
• eBay => extremely success full internet company
2003: $24 billion worth trade, net income: $477 million
• Amazon.com => five years of red numbers
Q4 2002 => 1c/share profit on turnover $1 billion
2003 profit => $36 million
• Google IPO => estimate $2.7 billion
cat it hurt smaller internet companies ?
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Internet
=?=
perfect competion
basic predictions
1. rise of comparison-shopping engines
=> all retailers to charge same price
2. product differentiation => price diversion
3. consumer behavior => predictable
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Bertrand model of competition
1. consumers are perfectly informed
2. goods are identical
3. firms choose price
4. firms can supply whatever quantity the
market demands at constant marginal cost
new approach: in conjunction with comparison
shopping agents
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price dispersion
• dispersion is driven by imperfect information
• the dispersion among online and off line retailer
is rather large
• price dispersion is higher over the time as an
result of dimishing level of competition
• according to some studies online stores
charged even more then traditional stores
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product diferentiation
• customers are willing to pay extra for premium
services and trusted brand
• Amazon.com prices => higher by 5 – 10 %
• differentiation possibilities:
=> version and bundling
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consumer behavior
• enjoy internet shopping
• Main reasons: 21% convenience
19% save money
• browsing with and without intent to buy
• speed of search => “perfect information is not
available in 20 minutes”
• time limit: 30 minutes
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deconstruction of purchasing process
• test in a bricks and mortar shop and buy
online
• search information on the Internet
• buy off-line
• consumers armed with enough information
• start with predictable products (books, CDs,
DVDs) and end up with real estates
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conclusion
bottom line
• Internet and electronic commerce opens new
horizons but also forced companies implement
new business model
• electronic commerce was too simplified and the
expectations were over hyped
• there is actually no evidence that the price will
be lower on homogenous goods
• product differentiation as a key
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Thank you for your attention!
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