Toward Digital Intermediation in the Information Society

By Hawkins, Richard; Mansell, Robin et al. | Journal of Economic Issues, June 1999 | Go to article overview

Toward Digital Intermediation in the Information Society


Hawkins, Richard, Mansell, Robin, Steinmueller, W. Edward, Journal of Economic Issues


The new interactive services associated with the development of the Internet seem to promise dramatic changes in the organization of commerce. If this promise is fulfilled through the emergence of digital intermediation, important implications will follow in the adjustment of existing firms to compete with new service providers.(1) A principal issue at the heart of the adjustment process concerns uncertainty about the extent to which the dematerialization of economic activity is likely to become a reality.(2) Dematerialization presupposes a capacity for "digital intermediation," but some aspects of intermediation may require physical presence and associated organizations. In addition, "disintermediation" - the process of eliminating traditional intermediary firms - challenges the business of many existing companies. The implications of electronic intermediation or disintermediation are considerable, given the significance that is being given to the growth of electronic commerce as the future mode of transaction for many commercial activities.

Some types of commercial activities appear to be more receptive than others to the implementation and diffusion of electronic commerce. In this paper, we consider some of the assumptions that underlie the more optimistic expectations for this new market environment and the likely role of incumbent firms as they move into "cyberspace" markets.

Digital Intermediation of the Commercial Environment

Electronic commerce provides an ideal laboratory for examining the extent to which digital intermediation is becoming a major factor for the economic viability of incumbent firms. Electronic commerce is more than simply another application of information and communication technology. People and institutions decide when, why, and where to acquire "staple" and "discretionary" goods and services according to complex social and cultural criteria. The ability to valorize goods and services in a market economy was first learned in a "materially based" social context. In a digitized, dematerial environment, many of these social skills will have to be relearned [Neice 1998]. For sellers of goods and services, this highlights the challenges involved in replacing material transaction and product environments with dematerial ones. Established trading communities continue to play very influential roles in cyberspace. An important question is whether and how soon the economic performance of established traders in the conventional marketplace might be replicated in cyberspace.

Electronic commerce can be defined as the application of information and communication technologies to any or all of three basic activities related to commercial transactions: production and support, transaction preparation, and transaction completion. This approach defines electronic commerce in terms of a structure of intermediary functions. Some of these functions are more likely candidates than others to be intermediated or, in some cases, disintermediated. Some analysts of the growth potential of electronic markets assume that existing intermediation of commercial processes is inherently economically inefficient and that one of the chief advantages of electronic commerce is that these processes can be disintermediated, thereby putting more buyers directly in touch with producers [Leebaert 1998]. This expectation has deep historical roots. The role of commerce relative to manufacturing or agriculture has always been held in suspicion.(3) Although examples of disintermediation certainly exist, the value of disintermediation as such may be questionable to many kinds of producers, sellers, and customers.

There is a persistent tendency for information and communication technology markets to be "technology led" and for suppliers to be in favorable positions to enmesh their clients in path dependent relationships with technologies [David and Steinmueller 1990; Steinmueller 1994]. Large corporate users have often played dominant roles in the development of Electronic Data Interchange (EDI) and Value Added Network (VAN) applications [Schmidt and Werle 1998]. …

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