Impact of E-Commerce Chapter 5 PDF

CHAPTER 5 IMPACT OF E COMMERCE  Learning Objectives In this chapter you will learn, that ICT can have a lot of consequences in the area of ethics and morale, that E-Commerce has positive as well as negative impacts on human beings and society, that E-Commerce changes the...

CHAPTER 5 IMPACT OF E COMMERCE  Learning Objectives In this chapter you will learn, that ICT can have a lot of consequences in the area of ethics and morale, that E-Commerce has positive as well as negative impacts on human beings and society, that E-Commerce changes the economic world significantly. 5.1 ETHICS, MORALE & TECHNOLOGY Ethics (sometimes known as moral philosophy) is a branch of philosophy that involves systematizing, defending and recommending concepts of right and wrong conduct, often addressing disputes of moral diversity. Philosophical ethics investigates what is the best way for humans to live, and what kinds of actions are right or wrong in particular circumstances. (Wikipedia 2015) ETHICS Morality (from the Latin moralitas “manner, character, proper behaviour”) is the differentiation of intentions, decisions, and actions between those that are “good” (or right) and those that are “bad” (or wrong). Morality can be a body of standards or principles derived from a code of conduct from a particular philosophy, religion, culture, etc., or it can be derived from a standard that a person believes should be universal. (Wikipedia 2015) MORALITY  The development of Information and Communication Technology (ICT) is breath taking. We see a doubling of computer power every 18 months. Business processes and business activities are increasingly based on ICT systems or even completely taken over by ICT systems. The firm without any employee seems to be a realizable vision. What does this mean for employment? Questions: Are we allowed to do everything we are able to do (See Immanuel Kant: Act beyond that dictum which you would like to be actual law.)? All, which is thought, will be done – sooner or later (See the Swiss author Friedrich Dürrenmatt: The physicists). How can we protect ourselves? In which society do we want to live – ethics-driven, technology-driven, economics- driven? What is the right balance between ethics, technology and economics 5.2.1 INFORMATION RIGHTS & INFORMATION DUTIES 5.2 ETHICAL ASPECTS OF ICT Effective delivery techniques Privacy protection must have a high priority in E-Commerce. The bases are the human rights and constitutions of states. There are a lot of privacy concerns around E-Marketing, because technology has become so powerful, see for example data mining and data usage, platforms like Facebook or the advantages in the area of biometrics. We find some interesting approaches to the definition and protection of the private sphere and the exposure to information. So has Steven Levy (Levy 1984) defined six basic rules: The access to computers and all systems, which can help you to learn more about this world, should be unlimited and complete. Practical experience should always be preferred. All information should be free. Mistrust authority – stimulate decentralization. Hackers should be judged according to their hacking activities only and not according to apparent criteria like certificates, age, race or social position. With computers you can make art and create beauty. Computers can turn your life for the better. 5.2.2 PROPRIETARY RIGHTS AND DUTIES Questions: How can we ensure that the salesman sells only that which he owns or which he is authorized to sell? Where are the boundaries between theft and copy? How can we distinguish between legal and illegal trade? When is a transaction a deal and when is it not? 5.2.3 ACCOUNTABILITY AND CHECK Questions: Who is responsible for damages caused by a machine, which is controlled by software? Who is liable if data of human beings are stolen? How can you guard your organization against damages caused by breakdowns of ITC systems? Who is responsible if wrong or reputation-damaging information is distributed via Internet? How can you make a person responsible if  5.3. OVERALL IMPACTS OF E-COMMERCE Questions with respect to the impact of ICT are: How does ICT change the world? What are the effects of bad software quality and bad data quality? How has the range of influence of ICT changed by the Internet? How much can we trust our ICT systems? Do we have to change our minds due to the powerful ICT? Can (global and digital) markets govern themselves? What must be governed by laws and international regulations? How does ICT influence support concentration of power and shift of power? Digitalization has increased productivity and caused economic growth. E-Commerce affects economies by increasing productivity (through additional capital formation) and may spur innovations in processes that will further increase productivity over the long term. Investments in ICT have clearly increased economic growth in many developed countries. MACRO ECONOMIC IMPACT International trade is changed enormously by E-Commerce. E-Commerce improves opportunities for increased specialization, which increase the gains from international trade. A lack of infrastructure, poorly trained workforces, and regulatory obstacles may reduce any potential gains from trade for developing nations. Firms could find international trade more profitable with E-Commerce. Trading opportunities in developing nations may not prove profitable in the short-run. MACRO ECONOMIC IMPACT E-Commerce also impacts monetary policy. Overall, E-Commerce is expected to increase competition and reduce search and transaction cost. The net effect will be lower prices. In the long run, these lower prices will represent a onetime change in the price level. MACRO ECONOMIC IMPACT E-Commerce reduces geographical constraints and increases interstate and international transactions. Governments who fear these transactions will reduce sales tax revenue. Revenue losses are small to date, but policymakers are increasingly exploring options to tax these transactions. Firms conducting interstate or international transactions will likely face increased pressure to collect sales tax revenue on behalf of their customer’s governments. MACRO ECONOMIC IMPACT Threat of entry E-Commerce may increase economies of scale in industries where fixed costs are unchanged, but variable costs are reduced. Thus minimum efficient scale increases and the threat of entry falls. E-Commerce may, at the same time, decrease economies of scale in industries where E-Commerce reduces fixed costs. Thus minimum efficient scale decreases and the threat of entry rises. E-Commerce may increase economies of scope and aggregation, particularly in information goods. The threat of entry decreases because rivals must enter with a bundle of goods. MICRO ECONOMIC IMPACT E-Commerce may increase the importance of network externalities enjoyed by incumbents. The threat from entrants on competing networks is reduced. E-Commerce may encourage subsidization of one side of a platform market. Entry barriers in the subsidized side of the platform fall. E-Commerce encourages the proliferation of two-sided (platform) markets, which may be subject to ‘‘lock in’’ of complementary goods. Application barriers to entry may arise from such vertical restraints. MICRO ECONOMIC IMPACT E-Commerce enables ICT outsourcing, converting fixed, sunk cost into variable cost. The threat from entrants increases as the importance of sunk costs declines. MICRO ECONOMIC IMPACT E-Commerce decreases the importance of physical location in prime real estate. Entry barriers fall. E-Commerce B2B vertical hubs may be owned and controlled by large incumbents. B2B vertical hubs may be able to dominate supply and distribution channels, effectively limiting opportunities for new rivals. MICRO ECONOMIC IMPACT E-Commerce decreases the importance of face-to-face trained sales force. Entry barriers fall. E-Commerce and outsourcing decrease the importance of physical nearness to skilled labour. Entry barriers fall. Early entry into E-Commerce confers initial but not necessarily lasting advantages to incumbents. Entry barriers decrease over time. MICRO ECONOMIC IMPACT POWER OF SUPPLIER E-Commerce may increase the number of E-Commerce reduces transaction costs suppliers and facilitate greater between supplier and industry. Thus transparency of product prices and cost suppliers lose ability to extract rents from structures. Thus suppliers could see reduced industry, as firms can more easily contract power over industry. Suppliers with competing suppliers. E-Commerce (incumbents) may maintain control over and vertical supply chain integration B2B vertical hubs. Thus suppliers could see tightens bonds between supplier and increased power over industry. customer. Supplier loses bargaining power due to the hold-up problem. POWER OF SUPPLIER E-Commerce reduces switching costs E-Commerce can increase vertical through the brokerage effect. Lower disintegration through switching costs of customers reduce supplier power. Suppliers may make outsourcing. Reduced incentives significant investments in vertical for suppliers to enter downstream supply chain integration. Higher markets lower supplier power switching costs of customers increase supplier power POWER OF CUSTOMER E-Commerce spurs disintermediation Information and search costs are reduced in industries such as travel agency with E-Commerce, and branding may service and brokerages. Intermediaries’ become less important. Product power (and even existence) is differentiation through branding decreases, threatened. E-Commerce spurs and customer power increases. re-intermediation through B2B vertical E-Commerce allows new forms of product hubs. Intermediaries’ power is differentiation, such as online ratings strengthened. supplied by past customers. THREATS OF SUBTITUTES THREATS OF SUBTITUTES 5.4.4 COST STRUCTURES In the traditional economy we (normally) have low allocation costs and high transaction costs. The following example demonstrates it: Let the infrastructure costs be 1.000 currency units, and marginal costs of a single transaction be 10 currency units. If the result of a transaction is sold at a price of 15 currency units and a quantity of 1.000 is delivered, then total costs are 11.000 currency units and sales revenues are 15.000 currency units. 5.4.4 COST STRUCTURES In the digital economy we (normally and vice versa) have high allocation costs and low transaction costs. Now let the infrastructure costs be 10.000 currency units, the costs of a single transaction be 1 currency unit. Then with a price of 15 currency units and a delivered quantity of 1.000 total costs and sales revenues are again 11.000 resp. 15.000 currency units. 5.4.6 ECONOMY OF ATTENTION 5.4.6 ECONOMY OF ATTENTION 5.4.6 ECONOMY OF ATTENTION EXTERNALITIES GLOBALIZATION Technical standardization (see TCP/IP, HTTP, SMTP, HTML, XML) creates a global platform, which allows the cooperation of an infinite number of partners all over the world. Global coverage leads to global markets. Suppliers can and must produce in lowest cost locations. Jobs are transferred to low cost areas. INFORMATION DENSITY Data can be exchanged electronically. Media breaches can be eliminated. This leads to an information flood. Thus efforts to find the relevant information may increase or must be compensated by intelligent search agents. Information and knowledge management becomes more and more important. INTELLECTUAL PROPERTIES Intellectual properties are traditionally protected by patents, copyright and trade marks; this includes the economic application. There are ambivalent effects of the Web: Coverage and distribution speed increase, but digitalized results can be copied and manipulated arbitrarily. 5.4.14 PRICING Digital markets increase transparency: Who offers what at which price? Suppliers and customers have ideally the same degree of information (symmetric). Arbitrage profits go down, perfect competition balance seem possible. Questions: When does the super market effect start: Transparency decreases through over-offering? What is the benefit of the lowest price if it is ex manufacturing plant and if the plant is 20.000 km away? Which methods do suppliers invent to reduce transparency (see configurable products)? What is the “price” of decreasing prices? 5.4.16 VOLATILITY Hollywood economics Digital goods must be completely ready when they enter the markets (see movies) and convince the customers. A supplier must be able to fund 3 to 4 flops with a blockbuster. 5.4.16 VOLATILITY Temporary monopolies Profit in E-Commerce will actually be possible in a monopoly situation (The winner takes it all) because of extreme competition and price pressure. Firms are forced to become monopolists: markets have to be occupied fast. Competition has to be avoided because it is ruinous for all participants. Monopolies will (normally) not stay forever because there are no essential entry barriers to the markets. Thus temporary monopolies will come up and will be replaced by subsequent temporary monopolies. Suppliers are forced to deliver unique products or services, thus they are forced to innovate. Thank you