Roger Clarke's Web-Site
© Xamax Consultancy Pty Ltd, 1995-2016
|Identity Matters||Other Topics||Waltzing Matilda||What's New|
SKETCH of 4 September 2009
Roger Clarke **
© Xamax Consultancy Pty Ltd, 2009
Available under an AEShareNet licence or a Creative Commons licence.
This document is at http://www.anu.edu.au/people/Roger.Clarke/EC/EMkts-0909.html
This paper presents a taxonomy of market forms in the electronic context, and identifies key factors that determine the appropriateness of each market form to particular contexts.
In (Clarke 2001), a set of dimensions of B2B markets was identified. The purpose at that time was to support an analysis of successes and failures among so-called 'B2B Exchanges'. These were mostly failures, and it was postulated that a major reason underlying the failures was mis-fit between B2B Exchange designs and the needs of the parties that the Exchanges were offered to.
This paper is intended to build on that prior work by providing a structured set of alternative market forms. It is in effect the obverse of the previous analysis, because it provides guidance to designers in their selection of appropriate market forms, rather than an analytical tool for post mortem examinations.
[Once the structure is clear, it will be described here]
The paper begins with a brief review of the nature of trading, followed by a statement of a working definition of a market. Key features of markets are described, in order to lay the foundations for guidance in the design. The primary basis for categorisation is proposed as the price-setting mechanism. Several common categories of market mechanism are described in greater detail, and guidance provided in relation to the determinants of appropriate market designs.
This section provides a brief overview of the nature of markets, as a basis for the proposal of a working definition of the term suitable as a basis for the development of guidance in the selection of suitable market forms.
A market is a context within which goods and services are transferred from entities that have them to entities that want them. Key functions that the context must support are mutual discovery by buyers and sellers of one another and their offerings and needs, and the facilitation of transactions.
The term 'market' was also originally close to synonymous with 'marketplace', and was associated with physical locations. The term 'marketspace' is used to distinguish the virtual contexts that have been enabled by advances in information technology, that have greatly extended market reach and thereby enhanced market depth, and that are the subject-matter of eCommerce (Rayport & Sviokla 1994, Clarke et al. 2000, Weill & Vitale 2001, Clarke 2001).
Marketspace transactions commonly comprise exchange of value between two parties, facilitated by infrastructure, perhaps supported by a marketspace operator, perhaps mediated by agents or brokers, and perhaps supported by service providers. Exchange is usually reciprocal, but may involve indirect recompense, or even no recompense at all. The reciprocity may be immediate, but may be deferred. The tradable items that are exchanged may be goods and services of any kind, whether physical or digital in nature, or cash or some equivalent, or promises or non-visible rights (Clarke et al. 2000).
A primary characteristic of an effective market is sufficient scale to attract at least parties that perceive intrinsic value in the tradable items, and preferably also traders. Scale requires not only sufficient parties but also sufficient transactions.
A market commonly (but not necessarily) involves parties that have an interest in some intrinsic value that they perceive the items to have. From the point of view of those parties, it is important that transactions can be relied upon to take place (or, as it is often expressed by economists, for a current price to be visible), and that prices are not subject to substantial distortions arising from the operation of the market itself.
A market commonly (but not necessarily) also involves parties that have an interest solely or predominantly in 'taking a turn on the rate'. From the point of view of traders, the volume of trading is of consequence, but a reasonable degree of price-volatility is essential.
Another important feature is comprehensibility. The scheme as a whole must be sufficiently coherent that intended actors believe that they understand it sufficiently well to make reasoned business judgements. The actors include sellers and buyers, but also marketspace operators, insurers and lenders
A wide range of alternative market-mechanisms exist whereby trading can occur. In order to work towards useful guidance for selection among market-types, it is important to achieve clarity in what a market is.
This sub-section is intended to cut through the ambiguities and put forward a definition that can underpin a usable taxonomy.
Kambil & van Heck (1998) described markets as "real or virtual meeting places where buyers, sellers, and intermediaries, meet to exchange or transfer property rights from one party to another". This contains some elements that are essential (e.g. buyers and sellers), and some that are not (e.g. intermediaries). It is ambiguous about some kinds of parties (e.g. lenders and borrowers, and sponsors and sponsees), and excludes others (e.g. donors and donees). The acts it encompasses are broad ("exchange or transfer"), and it encompasses transfers of items where a party that is paying may not be the party that receives the item passing in the other direction. But it may exclude some kinds of tradable items (e.g. a loan may or may not be a property right).
Care is needed to ensure that the scope is appropriately broad. The working definition proposed is:
A market is a mechanism for the transfer of tradable items, from entities that have them, to entities that want them.
A market is a mechanism. It is not a transaction, but an enabler of transactions. It is not a group of parties, but a means whereby parties can discover one another and one another's needs, and can conduct transactions. It is not an infrastructure, but a set of processes that depend upon infrastructure.
The neutral term 'transfer' is used, in order to avoid 'sale' and 'purchase' (which are two particular forms of transfer'), and to thereby encompass other forms such as barter and gift.
The neutral term 'tradable item' is used, in order to avoid the limitations of terms such as 'good' and 'service', to encompass cash and its equivalents, and promises of cash, and to cater for both physical and digital items.
A marketplace is a physical location and associated processes, whereas a marketspace is a virtual context in which entities discover one another and transact business
The necessary elements of a market are:
Optional additional features of a market include:
In designing a market, a wide range of factors need to be considered.
[This is a recent version of the slide-set I've been using for the last 10 years]
[The relevance of each category needs to be assessed]
Additional features beneficial, and even necessary, in some contexts:
Post: Accounting for Successive Usages
Post: Enforcement and Recourse
There are various ways in which market-forms can be differentiated. One of the most useful dimensions is according to the mechanism whereby the price is set. This section provides firstly a classification scheme, and secondly an outline description of important examples.
Some schemes are inherently to the advantage of the seller, and some inherently to the advantage of the buyer. Examples of seller-driven markets are catalogues with fixed prices and auctions types of various kinds such as English and Dutch, whose purpose is to stimulate a high sale-price. Buyer-driven market designs reflect the interests of the buyers, and include Request For Proposal (RFP, for Tender (RFT), and for Quotation (RFQ).
Some market designs, on the other hand, are balanced, and encourage buyers and sellers, and especially traders (who are successively buyers and sellers, often repetitively so), by avoiding inherent bias in favour of either party. Common forms of balanced market are negotiation processes and clearinghouse auctions, also known as exchanges.
This sub-section provides outline descriptions of several instances of market-forms that are of particular importance in eTrading.
[Need to reflect here the inconsistent literatures on the topic]
A particular kind of trading process where price is the key factor to be negotiated and offers are simple, stating price, perhaps quantity
Auctions are particularly applicable to commodities (i.e. undifferentiated goods and services)
Slide 24 - A wide range of mechanisms exist whereby trading can occur. For tradable items that have been contrived to be commodities (i.e. undifferentiated, one from another), there are no further attributes that need to be negotiated beyond quantity and price, and hence the trading mechanism is essentially a price-setting mechanism. Some schemes are inherently to the advantage of the seller, and some inherently to the advantage of the buyer. Some, on the other hand, encourage buyers and sellers, and especially traders (who are successively buyers and sellers, often repetitively so), by avoiding inherent bias in favour of either party.
Slide 25 - A small sub-set of all the possible trading mechanisms is particularly common. For seller-biased markets, variants of English (ascending) auctions are much-used, but Dutch (descending) auctions also work well in particular contexts. The primary form of balanced marketspace is a 'clearinghouse auction', commonly referred to as an 'exchange'.
Different forms of trading, and eTrading, are appropriate to different categories of tradable items (Clarke 2001). For tradable items that are commodities, or that have been contrived to be commodities (i.e. undifferentiated, one from another and hence substitutable), there may be no further attributes that need to be negotiated beyond quantity and price, and hence the trading mechanism is essentially a price-setting mechanism.
Apply Clarke (2001) categories and analysis, which recognises the following dimensions of differentiation:
Bailey J.P. & Bakos J.Y. (1997) 'An Exploratory Study of the Emerging Role of Electronic Intermediaries' Int'l J. of Electronic Markets 1, 3 (Spring 1997) 7-20
Bakos J.Y. (1991) 'A Strategic Analysis of Electronic Marketplaces' MIS Qtly (September 1991) 295-310
Benjamin R. & Wigand R. (1995) 'Electronic Markets and Virtual Value Chains on the Information Superhighway' Sloan Mngt Rev. 36, 2 (Winter 1995) 62-72
Clarke R. (1993) 'EDI Is But One Element of Electronic Commerce' Proc. 6th Int'l EDI Conf., Bled Slovenia, 7-9 June 1993, at http://www.anu.edu.au/people/Roger.Clarke/EC/Bled93.html
Clarke R. (2001) 'Towards a Taxonomy of B2B e-Commerce Schemes' Proc. 14th International EC Conf., Bled, Slovenia, 25-26 June 2001, at http://www.anu.edu.au/people/Roger.Clarke/EC/Bled01.html
Clarke R., Higgs P. & Dempsey G. (2000) 'Key Design Issues in Marketspaces for Intellectual Property Rights' Proc. 13th International EC Conf., Bled, Slovenia, 19-21 June 2000, at http://www.anu.edu.au/people/Roger.Clarke/EC/Bled2K.html
Engelbrecht-Wiggans R. (1980) 'Auctions and Bidding Models: A Survey' Mngt. Sci. 26, 2 (February 1980) 119-142
Ghosh R.A. (1998) 'Cooking pot markets: an economic model for the trade in free goods and services on the Internet' First Monday 3 3 (March 1998), at http://www.firstmonday.dk/issues/issue3_3/ghosh/index.html
Giaglis G.M., Klein S. & O'Keefe R.M. (1999) 'Disintermediation, Reintermediation, or Cybermediation? The Future of Intermediaries in Electronic Marketplaces' Proc. 12th Int'l Electronic Commerce Conf., Bled, Slovenia, June 1999, 389-407
Ginsburg M., Gebauer J. & Segev A. (1999) 'Multi-Vendor Electronic Catalogs to Support Procurement: Current Practice and Future Directions' Proc. 12th Int'l Electronic Commerce Conf., Bled, Slovenia, June 1999, 331-345
Gurbaxani V. & Whang S. (1991) 'The Impacts of Information Systems on Organisations and Markets' Commun. ACM 34, 1 (Jan 1991) 59-73
Kambil A., Nunes P.F. & Wilson D. (1999) 'Transforming the Marketspace with All-in-One Markets' Int'l J. of Electronic Commerce 3, 4 (Summer 1999) 11-28
Kambil A. & van Heck E. (1996) 'Case Study: Competition in the Dutch Flower Markets', at http://www.usc.edu/dept/sba/atisp/ec/Dutch_Flowers/flowerscase.pdf
Added 3 Sep 2009:
Kambil A. & van Heck E. (1998) 'Reengineering the Dutch flower auctions: A framework for analysing exchange operations' Inf. Sys. Research 9, 1 (1998) 1-19, at http://archive.nyu.edu/bitstream/2451/14208/1/IS-96-24.pdf
Kaplan S. & Sawhney M. (2000) 'E-Hubs: The New B2B Marketplaces' Harvard Bus. Rev. 78, 3 (May-June 2000) 97-103
Klein S. (1997) 'Introduction to Electronic Auctions' EM - Int'l J. of Electronic Markets 7, 4 (1997) 3-6
Klein S. & O'Keefe R.M. (1999) 'The Impact of the Web on Auctions: Some Empirical Evidence and Theoretical Considerations' Int'l J. of Electronic Commerce 3,3 (Spring 1999) 7-20
Lee H.G. & Clark T.H. (1996) 'Impacts of the Electronic Marketplace on Transaction Cost and Market Structure' Int'l J. of Electronic Commerce 1,1 (Fall 1996) 127-149
Lindemann M.A. & Schmidt B.F. (1999) 'Framework for Specifying, Building, and Operating Electronic Markets' Int'l J. of Electronic Markets 3, 2 (Winter 1998-99) 7-21
Malone T.W., Yates J. & Benjamin R. (1987) 'Electronic Markets and Electronic Hierarchies' Commun. ACM 30,6 (June, 1987) 484-497
Malone, T., Yates, J., & Benjamin, R. (1989) 'The Logic of Electronic Markets' Harvard Bus. Rev. 67, 3 (May-June 1989) 166-171
Mandry T., Pernul G. & Röhm A.W. (1999) 'Mobile Agents on Electronic Markets: Opportunities, Risks and Agent Protection' Proc. 12th Int'l Electronic Commerce Conf., Bled, Slovenia, June 1999, 1-13
Rayport J. F. & Sviokla J. H. (1994) 'Managing in the Marketspace', Harvard Bus. Rev. 72, 6 (November-December 1994) 141-150
Reck M. (1994) 'Types of Electronic Auctions' in Schertler W., Schmid B., Tjoa A. & Werthner H. (Eds.) (1994) 'Information and Communication Technologies in Tourism', Springer-Verlag, 1994, 236-243
Reck M. (1997) 'Trading-Process Characteristics of Electronic Auctions' EM - Int'l J. of Electronic Markets 7, 4 (1997) 17-23
Saffo P. (1998) 'DisinteREmediation: Longer, Not Shorter, Value Chains Are Coming', at http://www.saffo.org/disinteremediation.html
Sarkar M.B., Butler B. & Steinfeld C. (1995) 'Intermediaries and Cybermediaries: A Continuing Role for Mediating Players in the Electronic Marketplace' J. of Computer-Mediated Communication 1, 3 (December 1995), at http://jcmc.huji.ac.il/vol1/issue3/sarkar.html
Schmid B.F. (1993) 'Electronic Markets' Electronic Markets No. 9-10 (October 1993)
Schmid B.F. (1997) 'Requirements for Electronic Markets Architectures' Int'l J. of Electronic Markets 7, 1 (1997) 3-6
Segev A., Gebauer J. & Färber F. (1999) 'Internet-based Electronic Markets' EM - Int'l J. of Electronic Markets 9,3 (September 1999), at http://www.haas.berkeley.edu/~citm/procurement/publications/El_Market.pdf
Selz D. & Klein S. (1997) 'Emerging Electronic Intermediaries - the Case of the Automotive Industry' Proc. 10th Int'l Electronic Commerce Conf., Bled, Slovenia, June 1997, 316-336
Shapiro C. & Varian H.R. (1999) 'Information Rules: A Strategic Guide to the Network Economy' Harvard Business School Press, 1999
Torlina L., Seddon P. & Corbitt B. (1999) 'Attributable Characteristics of Goods and Services in Electronic Commerce' Proc. 12th Int'l Electronic Commerce Conf., Bled, Slovenia, June 1999, 94-105
van Heck E. & Ribbers P.M. (1997) 'Experiences with Electronic Auctions in the Dutch Flower Industry' EM - Int'l J. of Electronic Markets 7, 4 (1997) 29-34
Weill P. & Vitale M. (2001) 'Place to Space: Migrating to eBusiness Models' Harvard Business School Press, 2001
Wise R. & Morrison D. (2000) 'Beyond the Exchange: The Future of B2B' Harvard Bus. Rev. 78, 6 (November-December 2000) 87-96
Wrigley C. (1997) 'Design Criteria for Electronic Market Servers' EM - Int'l J. of Electronic Markets 7, 4 (1997) 12-16
Roger Clarke is Principal of Xamax Consultancy Pty Ltd, Canberra. He is also a Visiting Professor in the Cyberspace Law & Policy Centre at the University of N.S.W., and a Visiting Professor in the Department of Computer Science at the Australian National University.
The content and infrastructure for these community service pages are provided by Roger Clarke through his consultancy company, Xamax.
From the site's beginnings in August 1994 until February 2009, the infrastructure was provided by the Australian National University. During that time, the site accumulated close to 30 million hits. It passed 50 million in early 2015.
Sponsored by Bunhybee Grasslands, the extended Clarke Family, Knights of the Spatchcock and their drummer
Xamax Consultancy Pty Ltd
ACN: 002 360 456
78 Sidaway St, Chapman ACT 2611 AUSTRALIA
Tel: +61 2 6288 6916
Created: 28 November 2008 - Last Amended: 4 September 2009 by Roger Clarke - Site Last Verified: 15 February 2009
This document is at www.rogerclarke.com/EC/EMkts-0909.html