Markets for Electronic Markets? The Non-market Preconditions of Electronic Markets

This article addresses two questions. Firstly, which incentive structure Is needed if we are to see the emergence of electronic markets and, secondly, which implications follow from this for the idea of open electronic markets. It Is proposed to adopt a rather narrow concept of electronic markets which strongly relies on the notion of a competitive price mechanism in order to identify those preconditions which are specific to electronic markets as compared to other interorganisationai systems. It i s concluded that the applicability of this new coordination mechanism is resricted to groups establishing orgaised markets on the basis of strictly monitored membership rules which Implies that thereare only Imperfectly competitive markets for electronic markets.. The promise that the concept of electronic markets offers is fascinating. First, the limiting factors of time and space seem to have been overcome. Electronic-by Dr. Kai Reimets Universitv of Bremen-markets are ubiquitous and available 24 hours a day [7]. Second, electronic markets seem to be more 'just' and 'demo-cratic' as well as more competitive and decentralized [2, 41. Following these arguments , electronic markets could be considered manifestations of the neo-classical ideal, reducing transaction costs to a negligible minimum m. Thus, it would seem desirable to create as many electronic markets as possible in order to improve economic efficiency and social justice. However, electronic markets have to be constructed 17, p 4681, i.e. someone must be willing to invest resources in establishing an electronic market. If, from a normative point of view, one wishes electronic markets to exist it is therefore important to acquire some knowledge about the incentive structure necessary for the establishment of electronic markets. Function of Prices The normative idea of using markets as a means of coordinating economic activities relies on the ability of prices to guide decisions concerning the allocation of scarce resources. In order to be able to do so, prices must contain information about all transactions being accomplished at a given moment (which, in reality, is always a time span). Thus, if electronic markets are to accomplish this coordination function, they must provide a mechanism which guarantees that prices contain this kind of non-local information. Only a price mechanism which meets the following two criteria warrants this kind of information: o Every market transaction decision must be guided only by prices and quantities. o Buyers and sellers must compete among each other. A contrary oppinion can be found …