Markets are central to the functioning of economies, as we discussed in the elements on classical microeconomic theory Markets match buyers and sellers, facilitate exchange and provide the infrastructure which allows this exchange to take place.
In this element we will look at the emergence of electronic markets on the Internet. We will analyse the functions of markets, the types of market which exist and the products which are available in Internet markets.
We will then use our knowledge of Transaction cost economics to discern when organisations will choose to use markets for economic activity and how this choice has been affected by the Internet.
Trends of electronic market development will then be analysed. We will also look at the role of auctions in e-commerce and finally, the efficiency of electronic markets will be considered.
Defining markets 定义市场
As this element is about markets, we first need to define the term market. To quote Mansfield (1980, pp19-20), a market is:-
"A group of firms or individuals in touch with each other in order to buy or sell some goods. This does not mean that every participant in the market must be in touch with every other participant. An individual or organisation is part of a market if they are in contact with just a subset of the other participants."
Whilst a market may be in a particular physical location, e.g. a street market, a cattle market or a particular financial market, the vast majority of markets are not located in such close physical proximity. With the development of transport links and modern communications this is increasingly the case, as buyers and sellers become remote. Rayport and Sviokla (1996) classify this distinction as between the physical marketplace and the electronic marketspace.
Functions of a market 市场功能
Bakos outlines the key functions of a market (Bakos, 1998). These are:
Matching buyers and sellers
Facilitation of transactions
Provision of institutional infrastructure
Matching buyers and sellers 买家和卖家匹配
Markets bring together buyers and sellers and find a level of equilibrium where supply equals demand. This function has the following three parts to it:
Product offerings 产品
Markets provide sellers with information about demand, which allows them to develop products. They can then consider the implications, in terms of the resources required to meet this demand, and the likely benefits. It may even be that this information tells them they cannot profitably serve this demand.
Markets enable buyers to search for products which fit their requirements in terms of price and other factors, for example, quality. How efficiently this can be done depends on the availability and quality of information. In the same way, markets enable sellers to search for buyers who are likely to buy their products, for example, through market research and advertising.
Price formation 价格形成
A central role of markets is price formation, or market clearing. This is the level at which supply equals demand. Prices in markets may be fixed or negotiable.
In the above market situation, when the price is set above P1, supply exceeds demand. However, when the price is reduced to P1, the market clears at Q1.
It may be that markets do not 'clear', if prices are not flexible or 'sticky'. For example, organisations may prefer to hold excess stock, at least in the short term, rather than reduce prices. An indicator of market efficiency is whether markets clear. The lowering of menu costs, which are the costs of changing prices, caused by the Internet and the more flexible forms of pricing which are emerging, such as reverse pricing, could indicate greater efficiency.
Facilitation of transactions 交易手续
This role involves transferring the product to the buyer, which for physical products involves l