B2B Markets

Making Sense of Emerging

Market Structures in B2B

E-Commerce

The 12 market structures

• 3 distinctive categories: – Collaborative mechanisms– Quasi-market mechanisms– Neutral market mechanisms.

Benefits of B2B Sites

• Increased reach

• Reduction in transaction costs

• Deep customization capabilities.

Collaborative Market Mechanisms

• Market structures that fundamentally enable the market participants to gainfully exploit electronic integration.– They are enabled when inter-organizational

information systems are networked through Internet infrastructure for the purpose of sharing vital data of interest to the network members.

Collaborative Market Mechanisms

• These market structures – Increase the collaboration capability of the

network members – Help in speeding up business processes– Help eliminate duplication of resources– Cut costs– Improve responsiveness of the supply chain.

Quasi-Market Mechanisms• One or a small group of either the buyers or the sellers

will initiate the marketplace, host and monitor, enroll market participants, and moderate the market behavior if required.– Buyer-centric marketplace, buyers take the initiative to host the

market• Forward (buyer-bid) auctions: Buyers compete to obtain the

business of the “seller”– Seller-centric marketplace, sellers take the initiative to host the

market• Reverse (seller-bid) auctions: Sellers compete to obtain the

business of the “buyer”

Neutral Market Mechanisms

• Neutral market mechanisms include…– Exchanges– Catalogue Aggregators– Online Communities

Classification of B2B Market Structures

• Factors used for classification– Fragmentation– Asset specificity– Complexity of product assessment– Complexity of value assessment

Degree of Fragmentation• The degree of fragmentation in a market is defined by

the number of players and the geographical spread.– When the degree of fragmentation is high on both the supplier

and the buyer side, the market tends to be open and competitive.

– When there is less fragmentation, there is an opportunity for control-oriented mechanisms to characterize the market.

– When the degree of fragmentation is very low, organizations tend to benefit from collaborative practices as opposed to cont

Degree of Fragmentation

Asset Specificity• Asset specificity is a function of the costs of

setting up a relationship between two market participants in order to manage business transactions in a cost-effective manner.– The costs arise because of specific resources

(assets) that the two market participants have to deploy a priori in order to transact business.

Asset Specificity• When asset specificity is high, market participants are

better off by engaging in collaborative practices and superior coordination mechanisms.

• When the asset specificity is very low, competitive market practices and relationships based on price benefit both the buyers and the suppliers.

• In the medium asset specific situations, quasi-market mechanisms that blend both collaboration and competition are a viable alternative for the market participants.

Asset Specificity

Classification of Neutral Markets• Neutral markets have poor market liquidity

because…– Complexity of product descriptions: the amount of

information a buyer needs to understand the functional and technical specifications of the product or service.

– Complexity of value assessment: the amount of information needed to estimate accurately the worth of an item and to either arrive at a price or select items offered at a price.

Classification of Neutral Markets

Conclusions• Organizations have to strategically identify how

they will derive value by exploiting a variety of market structures

• To do this, firms must examine …– Fragmentation– Asset specificity– Complexity of product assessment– Complexity of value assessment