MODULE 5: IMPACT OF E-COMMERCE

ETHICS, MORALE & TECHNOLOGY

Ethics (sometimes known as moral philosophy) is a branch of philosophy that involves systematizing,
defending and recommending concepts of right and wrong conduct, often addressing disputes of moral
diversity. Philosophical ethics investigates what is the best way for humans to live, and what kinds of actions
are right or wrong in particular circumstances. (Wikipedia 2015)

Morality (from the Latin moralitas “manner, character, proper behavior”) is the differentiation of intentions,
decisions, and actions between those that are “good” (or right) and those that are “bad” (or wrong). Morality
can be a body of standards or principles derived from a code of conduct from a particular philosophy, religion,
culture, etc., or it can be derived from a standard that a person believes should be universal. (Wikipedia
2015)

The development of Information and Communication Technology (ICT) is breath taking. We see a doubling
of computer power every 18 months. Business processes and business activities are increasingly based on
ICT systems or even completely taken over by ICT systems. The firm without any employee seems to be a
realizable vision. What does this mean for employment?

Costs for data storage are still decreasing. Databases with detailed profiles of human beings are built and
used at acceptable costs. How much can the customer be manipulated?

We see an on-going progress in the area of data analysis. Human beings can be considered from different
perspectives and they also will be assessed and valued (only economically?). The behavior of human beings
can be forecasted. What about the freewill of customers?

Significant progress is also made in the area of networks and data communication. Data can be transferred
and analyzed all over the world. Do we see the end of privacy?

Questions:

• Are we allowed to do everything we are able to do (See Immanuel Kant: Act beyond that dictum
which you would like to be actual law.)?
• All, which is thought, will be done – sooner or later (See the Swiss author Friedrich Dürrenmatt:
The physicists). How can we protect ourselves?
• In which society do we want to live – ethics-driven, technology-driven, economics- driven?
• What is the right balance between ethics, technology and economics?
ETHICAL ASPECTS OF ICT

INFORMATION RIGHTS & INFORMATION DUTIES

Stakeholders of information management are single persons as well as organizations.

Privacy protection must have a high priority in E-Commerce. The bases are the human rights and
constitutions of states. For example, we will find Article 10 clause 1 in the German constitution: “Privacy of
correspondence, posts and telecommunication is invulnerable.” However, clause 2 of the same
constitution says: “Restrictions are only allowed on the basis of a law.” Further on the German constitution
says in article 13 clause 1: “The sanctities of a home is invulnerable.”

There are a lot of privacy concerns around E-Marketing, because technology has become so powerful,
see for example data mining and data usage, platforms like Facebook or the advantages in the area of
biometrics.

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 Several questions have to be asked:
• Under which circumstances may it be allowed to invade someone’s private sphere?
• How is the private sphere defined? Where are the boundaries? Due to content? In time?
• How can/must one protect his/her private sphere?
• Must we force him/her to better protect his/her private sphere?

We find some interesting approaches to the definition and protection of the private sphere and the
exposure to information. So has Steven Levy (Levy 1984) defined six basic rules:
• The access to computers and all systems, which can help you to learn more about this world,
should be unlimited and complete. Practical experience should always be preferred.
• All information should be free.
• Mistrust authority – stimulate decentralization.
• Hackers should be judged according to their hacking activities only and not according to
apparent criteria like certificates, age, race or social position.
• With computers you can make art and create beauty.
• Computers can turn your life for the better.
Mr. Wau Holland (Co-founder of the German chaos computer club) has added two rules to this:
• Do not trash the data of other people.
• Use public data, protect private data.

In the USA EFF, the Electronic Frontier Foundation was founded in 1990. Their main slogan is:
Defending your rights in the digital world. EFF fights for freedom primarily in the courts, bringing and
defending lawsuits even when that means taking on the US government or large corporations. By
mobilizing more than 61,000 concerned citizens through their Action Centre, EFF beats back bad
legislation. In addition to advising policymakers, EFF educates the press and the public.

PROPRIETARY RIGHTS AND DUTIES

The German constitution says in article 14 clause 2: “Ownership obligates. Its application has to serve the
public welfare.” What does this mean for intellectual properties? Which obligations does the owner have? And
how can he protect his information assets? This is a very important issue for everybody of us, because the
major security concerns in the Internet are global bank theft, data theft and social network data breaches.
Questions:

• How can we ensure that the salesman sells only that which he owns or which he is authorized to
sell?
• Where are the boundaries between theft and copy?
• How can we distinguish between legal and illegal trade? When is a transaction a deal and when
is it not?

ACCOUNTABILITY AND CHECK

There is or should at least be a responsibility and a liability for damages.

Questions:

• Who is responsible for damages caused by a machine, which is controlled by software?

• Who is liable if data of human beings are stolen?
• How can you guard your organization against damages caused by breakdowns of ITC systems?
• Who is responsible if wrong or reputation-damaging information is distributed via Internet?
• How can you make a person responsible if he/she does not live in your country?

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 Objectives:

• Protect data and systems.

• Protect the rights of individuals.
• Guarantee the security of the society.
• Protect institutions.
• Protect values.

OVERALL IMPACTS OF E-COMMERCE

Questions with respect to the impact of ICT are:

• How does ICT change the world?
• What are the effects of bad software quality and bad data quality?
• How has the range of influence of ICT changed by the Internet?
• How much can we trust our ICT systems?
• Do we have to change our minds due to the powerful ICT?
• Can (global and digital) markets govern themselves? What must be governed by laws and
international regulations?
• How does ICT influence support concentration of power and shift of power?
• How does ICT erode the monopoly of force of the states?
• How does ICT change social structures? Which social groups are preferred, which are
discriminated?
• How does ICT influence social life and social behavior?
• How does ICT in the end influence the evolution of the human race?
• What are the effects of ICT onto mental and physical health?
• Who is encouraged in organizations by ICT: owner, management or employees?
• Does ICT create jobs? Or does it finally eliminate jobs?

The subsequent sub-chapters are based on Proeger & Heil 2015.

MACROECONOMIC IMPACTS

Let us first consider the size of E-Commerce. E-Commerce has increased considerably in the developed
world in the last 20 years. B2B transactions continue to be the dominant form of E-Commerce across the
world. In 2009, B2B E-Commerce sales were 3.1 trillion USD or 32% of all B2B transactions in the
USA (US Census 2011).

B2C E-Commerce in the US accounted for 298 billion USD or only 2.8% of all B2C purchases in 2009.
Retail sales account for about half of the B2C figure, with the rest coming from services. Global B2C E-
Commerce spending was estimated to be 708 billion USD in 2010 (IDC 2011). Since 2001 the growth in
E-Commerce among developed nations has been dramatic. The USA witnessed a four-fold increase in
E-Commerce sales. E-Commerce markets in Australia and South Korea both increased more than
seven-fold (OECD 2011).

Developing nations have yet to witness considerable gains from E-Commerce. E-Commerce is increasing
in importance and cannot be ignored by strategists. First-mover advantages may be available in
developing countries.

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Digitalization has increased productivity and caused economic growth. E-Commerce affects economies
by increasing productivity (through additional capital formation) and may spur innovations in processes
that will further increase productivity over the long term. Investments in ICT have clearly increased
economic growth in many developed countries. The evidence is mixed in developing nations. While
adopting ICT by itself may not confer lasting competitive advantage, failure to do so will surely put an
organization at a disadvantage.

Also international trade is changed enormously by E-Commerce. E-Commerce improves opportunities

for increased specialization, which increase the gains from international trade. A lack of infrastructure,
poorly trained workforces, and regulatory obstacles may reduce any potential gains from trade for
developing nations. Firms could find international trade more profitable with E-Commerce. Trading
opportunities in developing nations may not prove profitable in the short-run.

E-Commerce also impacts monetary policy. Overall, E-Commerce is expected to increase competition
and reduce search and transaction cost. The net effect will be lower prices. In the long run, these lower
prices will represent a onetime change in the price level. In the aggregate, firms will face increased
pressure to lower prices, but individual industries may avoid price reductions through product
differentiation and increased customization.

The costs associated with inflation, namely menu costs (the cost of physically changing prices) could be
dramatically reduced with E-Commerce. Nevertheless, price rigidities will likely remain a fact of business
even with greater adoption of E-Commerce. Firms can more readily change prices in the wake of inflation
and other price shocks. However, E-Commerce does not eliminate all costs associated with price changes
E-Payments and E-Money present future challenges for policymakers who may find normal monetary
policy tools less effective with the proliferation of E-Payments and E-Money. Practically speaking, E-
Commerce has had little effect on monetary policy to date. Suppliers must consider whether to adopt E-
Payment systems for online and offline sales to avoid falling behind rivals.

E-Commerce reduces geographical constraints and increases interstate and international transactions.
Governments who fear these transactions will reduce sales tax revenue. Revenue losses are small to
date, but policymakers are increasingly exploring options to tax these transactions. Firms conducting
interstate or international transactions will likely face increased pressure to collect sales tax revenue on
behalf of their customer’s governments.

MICROECONOMIC IMPACTS

Threat of entry

E-Commerce may increase economies of scale in industries where fixed costs are unchanged, but
variable costs are reduced. Thus minimum efficient scale increases and the threat of entry falls. E-
Commerce may, at the same time, decrease economies of scale in industries where E-Commerce
reduces fixed costs. Thus minimum efficient scale decreases and the threat of entry rises. E-Commerce
may increase economies of scope and aggregation, particularly in information goods. The threat of
entry decreases because rivals must enter with a bundle of goods.

E-Commerce may increase the importance of network externalities enjoyed by incumbents. The threat
from entrants on competing networks is reduced. E-Commerce may encourage subsidization of one side
of a platform market. Entry barriers in the subsidized side of the platform fall. E-Commerce encourages
the proliferation of two-sided (platform) markets, which may be subject to ‘‘lock in’’ of complementary
goods. Application barriers to entry may arise from such vertical restraints.

E-Commerce enables ICT outsourcing, converting fixed, sunk cost into variable cost. The threat from
entrants increases as the importance of sunk costs declines.

E-Commerce decreases the importance of physical location in prime real estate. Entry barriers fall. E-
Commerce B2B vertical hubs may be owned and controlled by large incumbents. B2B vertical hubs may

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be able to dominate supply and distribution channels, effectively limiting opportunities for new rivals.

E-Commerce decreases the importance of face-to-face trained sales force. Entry barriers fall. E-
Commerce and outsourcing decrease the importance of physical nearness to skilled labour. Entry
barriers fall. Early entry into E-Commerce confers initial but not necessarily lasting advantages to
incumbents. Entry barriers decrease over time.

Power of suppliers

E-Commerce may increase the number of suppliers and facilitate greater transparency of product prices
and cost structures. Thus suppliers could see reduced power over industry. Suppliers (incumbents) may
maintain control over B2B vertical hubs. Thus suppliers could see increased power over industry.

E-Commerce reduces transaction costs between supplier and industry. Thus suppliers lose ability to
extract rents from industry, as firms can more easily contract with competing suppliers. E-Commerce and
vertical supply chain integration tightens bonds between supplier and customer. Supplier loses bargaining
power due to the hold-up problem.

E-Commerce reduces switching costs through the brokerage effect. Lower switching costs of
customers reduce supplier power. Suppliers may make significant investments in vertical supply chain
integration. Higher switching costs of customers’ increase supplier power

E-Commerce can increase vertical disintegration through outsourcing. Reduced incentives for suppliers
to enter downstream markets lower supplier power.

Power of customers

E-Commerce spurs disintermediation in industries such as travel agency service and brokerages.
Intermediaries’ power (and even existence) is threatened. E-Commerce spurs re-intermediation through
B2B vertical hubs. Intermediaries’ power is strengthened.

Information and search costs are reduced with E-Commerce, and branding may become less important.
Product differentiation through branding decreases, and customer power increases. E-Commerce allows
new forms of product differentiation, such as online ratings supplied by past customers. Product
differentiation increases, and customer power decreases. E-Commerce allows firms to offer greater
customization of products and services, such as computers sold to order. Product differentiation
increases, and customer power decreases. Informational problems such as adverse selection E-
Commerce allows firms to offer greater customization of products and services, such as computers sold to
order. Product differentiation increases, and customer power decreases.

E-Commerce enables gathering information about customers and resonance marketing. Suppliers can
improve their ability to extract value from customers. Customers might be able to aggregate demand
(Groupon, LivingSocial, etc.). Customer power increases, resulting in lower prices and higher quality.

Threat of substitutes

E-Commerce enables consumers to more quickly identify and purchase substitutes for a firm’s products.
The power of any one supplier decreases. Increasingly informed customers can easily find firms offering
unique products filling gaps in the marketplace. Firms selling unique products can extend market share.

E-Commerce reduces search costs and therefore decreases switching costs for consumers in markets
where they are willing to search for alternatives. Supplier power declines, and price levels and dispersion
fall. E-Commerce allows firms to reduce the efficacy of search engines (through sponsored search) and
to obfuscate prices and products. The customer’s ability to compare prices and products falls, allowing
firms to raise profits.

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 Rivalry among competitors

ICT, electronic market exchanges, and E-Commerce vertical hubs may enhance the market share of the
largest incumbents. Where significant differences exist between firms, the impact of E-Commerce on
market share will likely be greater. E-Commerce-enabled outsourcing and reduced capital requirements
for entry may make market structure more competitive. Incumbent suppliers lose power and market share.
In the wake of E-Commerce innovations, firms may attempt to capture a significant portion of the market
share through aggressive pricing strategies, particularly for goods with very low marginal costs (e.g.,
information goods). Competitive rivalry among suppliers in the industry heats up, and supplier power in
general decreases

Firms may join a coalition of competing firms selling less close substitutes in a B2C exchange. The
coalition can attract more customers to its site than any one company could, and supplier power
increases. E-Commerce lowers variable cost relative to fixed cost, making overcapacity problems
relatively greater. Overcapacity in industry leads to cutthroat pricing; competition among suppliers
increases and prices fall.

E-Commerce and non-profit organizations

Non-profit organizations attempt to adopt E-Commerce practices from the for-profit sector, such as using
terms like ‘‘checkout’’ when soliciting donations online. The commercialization of the donation process
leads philanthropists to decline to contribute to the non-profit. Non-profits adopt ICT as a symbolic
resource. The non-profit establishes legitimacy and improves its reputation among donors and
accountability organizations.

SPECIFIC IMPACTS OF E-COMMERCE

Now, let us consider some specific impacts of E-Commerce, which all have a bright side but a shady side
as well.

ATOMIZATION

The units, which make sense economically, become smaller – due to the increasing data processing
capabilities.

Examples are:
• Letting of shelf space in the retail business with sales dependent prices,
• Demand driven pricing in retail business, transportation business or gas stations,
• Tracking & Tracing in the transportation business,
• Road charges.
COMMODITIZATION

Complex, explanation needing and expensive goods and services become widespread available and easily
applicable. Standardization and simplification will be profitable if sales management can enter mass
markets via the Web.

Commoditization is well known but is accelerated through the Web. Coverage and transparency in the
market increase. However, atomization and strong competition may lead to individualized and
personalized products, which are aggregated from commodity goods and services.

By the way: There is a significant externalization effect if you book your tickets via the Web. The travel
agency can reduce staff because now you are doing their job!

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 CONFIDENCE

Business partners are anonymous and do not know each other. They have to carry on efforts to build
trust. This must be done on the background of the high speed of E-Commerce.

Fundamentals

Business transactions are only then conducted if all involved partners trust each other that the customer
gets the contracted goods or services and the supplier gets the contracted revenues. Confidence is
necessary because the accomplishment and the financial equivalent cannot be conducted completely
simultaneously. As long as the transaction is running always one partner has a temporary advantage or
disadvantage.

Traditionally transactions with high values are protected with the help of custodians or notaries.

Confidence in traditional businesses is generated as follows:

• The business partners know each other independently from the actual transaction. Possibly they
have already conducted common business transactions successfully.
• The business partners catch up on each other’s seriousness at a third party.
• The business partners involve one or more trustable agents who shall ensure that the contract
is successfully signed and the business conducted.
• The business partners make all activities transparent to the other business partner(s).
• However, there will always be a residual risk.
Correspondingly confidence in E-Commerce is generated as follows:

• The business partners know each other independently from the actual transaction. The Internet
is just the platform to run a transaction.
• The business partners catch up on each other’s seriousness at a third party, may be via the
Web.
• The business partners involve one or more trustable agents who shall ensure that the contract
is successfully signed and the business conducted, may be a specific Web platform (see ebay or
Alibaba).
• The business partners make all activities transparent to the other business partner(s), of course
with the help of the Web.
• However, there will always be a residual risk.

There are some specific questions to be answered:

• Are the involved agents trustworthy? E.g. the Web broker, logistics partner, bank?
• Can we be sure that non-involved third parties cannot find out anything on our transaction?
• Can we be sure that non-involved third parties are not able to interfere our transaction?
• Can we be sure that the addressee receives all exchanged data as they have been submitted by
the sender?

COST STRUCTURES

If a “digital” infrastructure is up and running marginal costs become very low. The production of a software
package is a very good example of this effect. Access costs, transaction costs and switching costs are
reduced dramatically (see electronic catalogues).

In the traditional economy we (normally) have low allocation costs and high transaction costs. The following

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example demonstrates it: Let the infrastructure costs be 1.000 currency units, and marginal costs of a single
transaction be 10 currency units. If the result of a transaction is sold at a price of 15 currency units and a
quantity of 1.000 is delivered, then total costs are 11.000 currency units and sales revenues are 15.000
currency units.

In the digital economy we (normally and vice versa) have high allocation costs and low transaction costs.
Now let the infrastructure costs be 10.000 currency units, the costs of a single transaction be 1 currency unit.
Then with a price of 15 currency units and a delivered quantity of 1.000 total costs and sales revenues are
again 11.000 resp. 15.000 currency units.

What happens if the quantity is doubled? In the traditional economy sales go up to 30.000 currency units
and costs increase to 21.000 currency units. In the digital economy sales go up to 30.000 currency units,
too. But costs increase to 12.000 currency units only. What happens if selling goes down by 50%? In the
traditional economy sales go down to 7.500 currency units and costs decrease to 6.000 currency units. In
the digital economy sales go down to 7.500 currency units, too. But costs only go down to 10.500
currency units.

Where is the break-even-point? In the traditional economy we have 15 x = 1.000 + 10 x and this equation
leads to x = 200. In the digital economy we have 15 x = 10.000 + 1 x and this equation leads to x = 715.

How do we have to interpret these results? What does this mean for the entrepreneur/ shareholder? The effect
is not a new one: A reduction of variable/direct costs often leads to an increase of fixed/indirect costs. But in
the electronic business this is exponentiated… If prices and profit margins are low the supplier has to sell high
volumes in short times to generate profit. Profit expectations are high, but the risks are high, too.

DISINTERMEDIATION/RE-INTERMEDIATION

In the digital economy value chains become shorter. This is already known in traditional businesses, but
radicalness and speed of change have increased. See the disappearance of intermediary trade/wholesale
trade and retail sale. Suppliers sell directly to the consumer. For digital goods the physical manufacturing is
transferred to the consumer: I print my books at home. Traditional intermediates are eliminated. See the music
business as another good example for this effect.

However, at the same time the high volume of offerings and the high number of customers in the Web leads
to the establishment of new intermediaries, e.g. electronic marketplaces (B2B und C2C) where demand and
offerings are bundled. Value chains become longer (again) to benefit from synergies with respect to
specialization. The reason for this paradox changes is that minimizing of transaction costs with ICT is realized
and this may sometimes lead to a disintermediation, but sometimes vice versa to a re-intermediation.

ECONOMY OF ATTENTION

Providers of a specific service can often be found in direct neighborhood (see car dealers, farmer’s market),
because here it is easier for them to get the attention of potential customers. But if the market size increases
every participant has to increase his marketing and advertising efforts to be noticed by potential customers.
However, activities to get attention from potential customers will show an effect only if there are potential
customers on the marketplace.

This leads to the finding, that the really narrow good is the attention of the potential customer, nothing else.
Subsequently it must be the objective of the supplier to get the attention of his potential customers. With this
background we see a changed role perception: The customer offers his attention and is “paid” by the supplier
with content (see commercial television). The supplier can sell his product or service if he first buys the
attention of his potential customer.

Examples of attention driven business models are:

• Subscription,
• Performance,

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 • Consulting and other intelligent services,
• Membership,
• Conferences and trainings,
• Customer service,
• By-product,
• Advertisement,
• Sponsors.
Categories of attention driven businesses are:
• Free offerings shall cause the customer to buy another product or service, which must be paid
and also finances the costs of the provided teaser.
• The free services lead to connected services, which must be paid.
• The “free” service is paid by a third party.

The free service in the Web is often combined with a good or service, which cannot be delivered via the
Web.

Within the information flood of the Internet the single supplier has to increase his marketing efforts and
thus finally his marketing costs to get attention. So-called “teasers” are given away free of charge. This
shall generate the willingness to purchase other goods or services. Also freemium models are installed
by many providers of digital goods. A basic product is given away free of charge. But the customer has to
pay for premium functionality. So some software tools are given away. But if the user wants to export or
import files or just to print some content he has to buy an additional and specific software module, which is
not included in the basic package…

EMPLOYMENT

Does E-Commerce really create jobs as it is stated quite often? Let us consider what really goes on.

If the customer uses his free money to buy additional goods or services, then he generates an additional
demand. As long as this additional demand leads to a need of human workload the freed manpower can be
allocated in new jobs. But… E-Commerce speeds up the price decrease. How long does it take until the free
workload is allocated in new jobs?

However, there is a second question: Can the free manpower be allocated 1:1 in other jobs? Or do the new
jobs need other skills and a higher qualification? Are the job-seeking people qualified enough? Can they be
qualified?

Conclusion: There is a big social and political issue. But this cannot be solved by company owners. Because
nobody can ask them not to make profit. It is a macroeconomic and political challenge. However, also business
people as well as computer scientists have a social responsibility.

EXTERNALITIES

Let us start with a definition: Externalities are side effects of business transactions from which the parties
involved in the transaction do not suffer but also do not have an advantage. However, third parties may suffer
or benefit from those side effects.

Examples of externalities are:

• Environment pollution of a manufacturing facility, from which the people around will suffer.
• Parking area of a shopping center, which can be used for markets or sport events or just as a
playground when the shopping center is closed.

Negative Externalities lead (hopefully) to legal consequences. Positive Externalities often generate new

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 businesses.

Internet examples of externalities are:

• Coverage raises advertising.
• Virtual Communities are attractive for focused advertising.
• Initiation of “clubs”: economic advantages of membership (Who benefits?), appeal to human
vanities (exclusivity).

GLOBALIZATION

Technical standardization (see TCP/IP, HTTP, SMTP, HTML, XML) creates a global platform, which allows the
cooperation of an infinite number of partners all over the world. Global coverage leads to global markets.
Suppliers can and must produce in lowest cost locations. Jobs are transferred to low cost areas.

INFORMATION DENSITY

Data can be exchanged electronically. Media breaches can be eliminated. This leads to an information flood.
Thus efforts to find the relevant information may increase or must be compensated by intelligent search
agents. Information and knowledge management becomes more and more important.

INTELLECTUAL PROPERTIES

Intellectual properties are traditionally protected by patents, copyright and trademarks; this includes the
economic application. There are ambivalent effects of the Web: Coverage and distribution speed increase, but
digitalized results can be copied and manipulated arbitrarily.

Alternative ideologies are discussed:

• Protection of ownership through appropriate technical procedures, e.g. databases, certificates,
• Free use as cultural assets; commercial compensation through follow-up business.

However, there is a problem. Who funds the efforts to create intellectual properties? And who is the customer
of the intellectual property? The one, who pays for an intellectual property, will claim that only he is allowed to
use it. This is an old and not at all an Internet specific problem.

And last but not least: How can we ensure that an intellectual achievement is assigned to the creator for a
sufficient long time (copyright)? We have to state the basic problem of intellectual properties in the Web is that
anonymity of users leads to intellectual theft (plagiarism).

LEVELLING EFFECTS

We have similar and cost efficient, sometimes even free, access to the electronic market(s) for all participants.
Also small organizations have access to services (e.g. software), which outside the Web only big
organizations were able to afford.

Physical restrictions lose impact.

ENCOURAGEMENT OF INTERNATIONAL COOPERATION

The significance of company size changes. We see advantages for very big and very small firms, probably
disadvantages for medium-sized businesses. Consequently, the company sizes are changing. There is a clear
trend to very big and very small companies. Will this be the death of the medium-sized business?

PRICING

Digital markets increase transparency: Who offers what at which price? Suppliers and customers have ideally
the same degree of information (symmetric). Arbitrage profits go down, perfect competition balance seem
possible.

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 Questions:

• When does the super market effect start: Transparency decreases through over-offering?
• What is the benefit of the lowest price if it is ex manufacturing plant and if the plant is 20.000
km away?
• Which methods do suppliers invent to reduce transparency (see configurable products)?
• What is the “price” of decreasing prices?
Let us try to answer the last question. As a consumer you have a specific need for products and services.
Through E-Commerce you can buy this “package” cheaper. Therefore, the supplier has to reduce his
prices. Thus he has to reduce costs. As a consequence, he forces his suppliers to reduce their prices and
costs. All producers need people to do the work. Finally, also the suppliers of human work have to reduce
their prices. Sooner or later we have to talk about salary reductions and unemployment…

TRANSPARENCY AND COOPETITION

Coverage and speed of the Internet lead to better comparability of offers, harder competition and price
pressure among suppliers and thus to lower costs on the customer side (which would be an advantage for the
customers, if the personal income would not be reduced…). Transparency leads to price and profit reductions
on the supplier side. Inflation is slowed down.

Electronic business stimulates/requests virtual organizations, which are cooperations of autonomous legal
entities who work together on the background of a common business understanding… From a customer’s
point of view this looks like one homogeneous firm. This is already well known in traditional businesses, e.g.
syndicates in underground construction. Competitors work together temporarily. This is described with the term
coopetition.

Business models:

• Prime contractor: manages initiation and execution,

• Broker: manages only the initiation.

Criteria:

• Cooperation of autonomous companies,

• Partners holding their economic and legal autonomy,
• Optimal combination and use of resources,
• Open for everybody if he/she can contribute to the objectives,
• Closure after achievement of objectives (project management),
• Horizontal and vertical cooperation,
• No hierarchical structures, no one authorized to give instructions,
• High level of confidence among all members.

Examples can be found in the publishing sector, construction industry, software industry, and consulting.

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 The Internet allows building groups, which can work on their objectives independently from
the geographical distribution of members. We see a trend towards open-source-initiatives:
elimination of commercial relationships and replacement by personal communication and free
of charge experience exchange. Does a new countertrade economy come up? But where do
those actors get their money from to finance their daily life?

VOLATILITY

Hollywood economics

Digital goods must be completely ready when they enter the markets (see movies) and
convince the customers. A supplier must be able to fund 3 to 4 flops with a blockbuster.

Temporary monopolies

Profit in E-Commerce will actually be possible in a monopoly situation (The winner takes it all)
because of extreme competition and price pressure. Firms are forced to become monopolists:
markets have to be occupied fast. Competition has to be avoided because it is ruinous for all
participants. Monopolies will (normally) not stay forever because there are no essential entry
barriers to the markets. Thus temporary monopolies will come up and will be replaced by
subsequent temporary monopolies. Suppliers are forced to deliver unique products or
services, thus they are forced to innovate.