Due to the minor relevance of search and transaction costs as well as the low costs of price change and market entry, digital markets should come preferably close to the ideal of a perfect competition. For company purposes, the use of electronic commerce for the distribution of goods and services implies the potential to reduce transaction costs and thus increases the efficiency of business processes.
The pricing strategies of internet retailers were analysed considering the online market for contact lenses as example. Here it appeared that the market efficiency on digital markets can indeed be higher than on conventional markets, however, a full market transparency is not observed. The offered contract conditions, the service benefits as well as the virtual location of the internet retailers are relevant to the extensive price dispersion on the online market. The virtual location proves to be a central component in the advertising strategy of online retailers. Both banner advertisements and so-called sponsored links are used to signal either favourable prices or a good retailer service to the customers.
E-commerce with other companies (business-to-business, B2B e-commerce) has had a much greater relevance to companies than the distribution to private end customers so far, as it accounts worldwide for about 80 percent of the entire e-commerce turnover. Hence it was analysed in a further step to what extent the efficiency raising potential of the B2B e-commerce is reflected by the labour productivity on the firm level. The empirical analysis on the basis of nearly 1.400 companies from both manufacturing and services industries shows that companies using B2B E-commerce as a distribution channel are significantly more productive.
The results are less clear in view of the foreign activities of companies. Companies, which use B2B e-commerce as a distribution channel are significantly more active in terms of exports, distribution partners and foreign distribution bases than companies without B2B. These correlations are not present in the case of the B2C e-commerce. Causal analyses for the effects of e-commerce on the export quota show, however, that the observed correlations are not causally interpretable. That is, neither B2B nor B2C have a significant causal effect on the export quota of companies.
Discussion and Working Papers
Häring, Julia (2005), The Virtual Location of E-Tailers: Evidence from a B2C E-Commerce Market, ZEW Discussion Paper No. 05-52, Mannheim. Download
Bertschek, Irene, Helmut Fryges and Ulrich Kaiser (2004), B2B or Not to Be: Does B2B E-Commerce Increase Labour Productivity?, ZEW Discussion Paper No. 04-45, Mannheim. Download
Häring, Julia (2003), Different Prices for Identical Products? Market Efficiency and the Virtual Location in B2C E-Commerce, ZEW Discussion Paper No. 03-68, Mannheim. Download