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Characteristics of Electronic Markets

Characteristics of Electronic Markets. A Cost-Based Comparison of Traditional vs. Online Stores. Overview. Why do consumers buy some items at a retail store and other items online? Three order fulfillment processes (OFPs)

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Characteristics of Electronic Markets

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  1. Characteristics of Electronic Markets A Cost-Based Comparison of Traditional vs. Online Stores

  2. Overview • Why do consumers buy some items at a retail store and other items online? • Three order fulfillment processes (OFPs) • A buyer-side comparison of traditional retail channels versus electronic marketplaces • A seller-side comparison of traditional retail channels versus electronic marketplaces • Other channel differences

  3. Three Order Fulfillment Processes (OFPs) • Traditional market (retail store) OFP • OFP with an electronic market • OFP with an electronic market and an electronic distribution network

  4. Traditional Order Fulfillment Process Market Information Exchange Seller 1 Seller 2 Customer Seller 3 Product Distribution Network Information Product

  5. OFP with an Electronic Market Seller 1 Electronic Market Seller 2 Customer Seller 3 Product Distribution Network Information Product

  6. OFP with an Electronic Market and an Electronic Distribution Network Seller 1 Electronic Market and Distribution Network* Seller 2 Customer Seller 3 Information and Digitized Product * convergence of marketing, order processing, distribution, and payments

  7. Buyer Transaction Costs • Information search costs • Product price • Risk • Opportunity cost (time) • Distribution cost • Sales tax

  8. Buyer Cost Differences Traditional Electronic Market Market Search Price Risk Opportunity Distribution Sales Tax Lower Higher

  9. Seller Side Costs • Advertising cost • Overhead cost • Inventory cost • Production cost • Distribution cost

  10. Seller Cost Differences Traditional E-Market: E-Market: Market physical digital product product Advertising Overhead Inventory Production Distribution Lower Higher

  11. Explaining Consumer Behavior in Electronic Markets • This analysis takes a simplistic view of consumers as economic agents whose decisions are driven by a search for lower transaction costs • This is useful for explaining a portion of online consumer behavior, but other, more complex, issues must also be considered • What other factors should be considered for explaining online consumer behavior and identifying differences between traditional retail stores and online stores?

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