E-Commerce: Economics and Regulation

SAM Advanced Management Journal, Autumn 1999 | Go to article overview

E-Commerce: Economics and Regulation


Introduction

We no longer need to imagine a world in which trade is conducted through an electronic web of computers and communication devices largely unregulated by nations; that network is known as the Internet. Internet commerce, or e-commerce, describes the commercial activities over this worldwide network or "Web."As indicated in Figure 1, according to the Forrester Research Group, in 1997, U.S. Internet commerce accounted for $8 billion goods and service; by 2002, Internet commerce in is forecast to rise to $327 billion.

Organizational Economic Theory and the E-Commerce

Because the Internet is such a recent phenomenon, empirical models that predict specifically the behavior of firms engaged in e-commerce need to be developed. However, organizational economics provides a useful framework for describing the behavior of firms engaged in e-commerce (Barney & Ouchi, 1986). Organizational economic theory states that firms seek strategies that minimize their costs of negotiating and governing transactions across markets by changing their structures (Jones & Hill, 1988). Controlling agency costs, that is, costs associated with monitoring managers and cooperative partners, is crucial to profitability. Thus, organizational economic theory posits that the "grand strategy" of profitability in doing business over the Internet will be to minimize transaction costs associated with Internet service providers (ISPs) and other middlemen by expanding a firm's control over transactions.

A key element in cost control in any business process is limiting assets used in performing organizational functions. Organizational economic theory holds that when assets are allocated for a specific purpose, they cannot be used for other purposes (Barney). It is assumed that agents waste assets because the agent will act to increase its own benefits; the agent's and principal goals naturally differ (Borys & Jamison, 1989; Ghoshal & Moran; Hill, Hitt, & Hoskisson, 1992).

The specific control of limited assets, the monitoring of agents, gaining maximum flexibility in the ability to redirect assets, and acquiring benefits associated with the agent's assets represent the current center of organizational economics research.

Information as a Nonlimiting Asset

Information is a new asset form; it cannot be thought of in the same way as property, plant and equipment. Information confounds traditional organizational economic analysis because unlike conventional assets that are "specified" once and are, essentially, depleted as transferred, information can be sold over and over again (Fulk & DeSanctis, 1995). Information's multiple asset value can be seen clearly in customer lists and accounts that can be sold to telemarketers, banks, insurance companies, and brokers, while, at the same time they are simultaneously retained by the seller to be sold again.

As indicated in Figure 2, transfers of information over the Internet are relatively easy, requiring only equipment, software, and an on-line service. The equipment is, generally, a computer device which is then switched on to the Internet by a Web browser (specialized software); moving from place to place is the job of the ISP.

Sector Leaders in E-Commerce

Although this section is devoted entirely to describing e-commerce outside of computer, software, and communication companies, it is important to note that at least one equipment manufacturer (Dell Computer) and one software distributor (Egghead) have converted, or are in the process of converting, their entire organization to e-commerce. This conversion includes having no retail outlets, no sales personnel, and no advertising other than over the Internet.

Three sectors have already taken advantage of information as a multi-faceted asset and are embracing e-commerce as a core business strategy:

* Financial Services: Billions of dollars in equity, bond, option, and other investment transactions are moving instantly via electronic trading. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

E-Commerce: Economics and Regulation
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.