The Effects of Business-to-Business E-Commerce on Transaction Costs
AbstractIn this paper, we study the changes in transaction costs from the introduction of the Internet in transactions between firms (i.e., business-to-business (B2B) e-commerce). We begin with a conceptual framework to organize the changes in transaction costs that are likely to result when a transaction is transferred from a physical marketplace to an Internet-based one. Following Milgrom and Roberts (1992), we differentiate between the impact on coordination costs and motivation costs. We argue that it is likely that B2B e-commerce reduces coordination costs and increases efficiency. We classify these efficiencies into three broad categories (1) process improvements; (2) marketplace benefits; and (3) indirect improvements. At the same time, B2B e-commerce affects incentive costs. In particular, we discuss the impact of the introduction of e-commerce on informational asymmetries. We implement this framework by analyzing detailed internal data from one Internet-based firm to measure process improvements, marketplace benefits, and motivation costs. We present less detailed data and analyses for one other firm. Our results suggest that process improvements and marketplace benefits are potentially large. We find little evidence that informational asymmetries are more important in the electronic marketplace we study than the existing physical ones.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8017.
Date of creation: Nov 2000
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Publication status: published as Luis Garicano, Steven N. Kaplan. "The Effects of Business-to-Business E-Commerce on Transaction Costs," in Severin Borenstein and Garth Saloner, editors, "E-commerce" Journal of Industrial Economics, Vol. 49, no. 4, (John Wiley & Sons, Inc.) (2001)
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Other versions of this item:
- Luis Garicano & Steven N. Kaplan, 2001. "The Effects of Business-to-Business E-Commerce on Transaction Costs," NBER Chapters, in: E-commerce, pages 463-485 National Bureau of Economic Research, Inc.
- Garicano, Luis & Kaplan, Steven N, 2001. "The Effects of Business-to-Business E-Commerce on Transaction Costs," Journal of Industrial Economics, Wiley Blackwell, vol. 49(4), pages 463-85, December.
- D2 - Microeconomics - - Production and Organizations
- D4 - Microeconomics - - Market Structure and Pricing
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