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The economics of electronic commerce
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Economics of Electronic Commerce
(Publisher: Macmillan Computer Publishing)
Author(s): Soon-yong Choi; Andrew Whinston; Dale Stahl
ISBN: 1578700140
Publication Date: 07/22/97
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Contents
About This Book
Trademark Acknowledgments
Credits
Chapter 1 - Electronic Commerce and the Internet
Chapter 2 - Characteristics of Digital Products and Processes
Chapter 3 - Internet Infrastructure and Pricing
Chapter 4 - Quality Uncertainty and Market Efficiency
Chapter 5 - Economic Aspects of Copyright Protection
Chapter 6 - Signaling Quality and Product Information
Chapter 7 - Consumers' Search for Information
Chapter 8 - Product Choices and Discriminatory Pricing
Chapter 9 - Financial Intermediaries and Electronic Commerce
Chapter 10 - Electronic Payment Systems
Chapter 11 - Business and Policy Implications of Electronic Commerce
Chapter 12 - Future Directions for Economic Research
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Brief Full
Advanced
Search
Search Tips
To access the contents, click the chapter and section titles.
Economics of Electronic Commerce
(Publisher: Macmillan Computer Publishing)
Author(s): Soon-yong Choi; Andrew Whinston; Dale Stahl
ISBN: 1578700140
Publication Date: 07/22/97
Search this book:
Table of Contents | Next
Page 7
Contents
Contents at a Glance
Chapter One
Electronic Commerce and the Internet 1
Chapter Two
Characteristics of Digital Products and Processes 59
Chapter Three
Internet Infrastructure and Pricing 93
Chapter Four
Quality Uncertainty and Market Efficiency 137
Chapter Five
Economic Aspects of Copyright Protection 175
Chapter Six
Signaling Quality and Product Information 213
Chapter Seven
Consumers' Search for Information 263
Chapter Eight
Product Choices and Discriminatory Pricing 313
Chapter Nine
Financial Intermediaries and Electronic Commerce 373
Chapter Ten
Electronic Payment Systems 407
Chapter Eleven
Business and Policy Implications of Electronic Commerce 463
Chapter Twelve
Future Directions for Economic Research 539
Index 583
Page 8
Page 9
Table of Contents
1 Electronic Commerce and the Internet 1
1.1. Developments in Internetworking 2
Distributed and Networked Computing 3
Open Networks 5
Two-way Communications and the Web 9
1.2. Electronic Commerce 12
Electronic Commerce Examples 13
Electronic Commerce as a Communications Network 15
Electronic Commerce of Digital Products 16
Commercial Potential of the Internet 21
1.3. Market Characteristics of Electronic Commerce 22
Current Commercial Uses of the Internet 23
User Characteristics 25
Competition and Market Organization 27
Business Organization and Virtual Firms 30
Legal Environment 32
1.4. Current Issues in Electronic Commerce 35
Contents and Quality 35
Copyrights versus Users Rights 38
Copyright and the Freedom of Speech 39
Legal and Economic Considerations of Copyrights
40
Interactive Advertising and the Use of Consumer Information 41
Push or Pull Advertising 42
Measuring the Impact of Online Advertising 43
Targeted Advertising and Privacy 44
Internet Intermediaries 45
Security and Privacy of Internet Transactions 46
Page 10
Pricing Strategies for Digital Products 48
Online Taxation, Regulation, and Other Legal Issues 50
1.5. Summary 51
References 53
Suggested Readings and Notes 54
History of the Internet 54
Firms and Markets 54
Electronic Data Interchange (EDI) 55
Internet Resources 55
Implications of Digital Process 55
The Internet Society (ISOC) 56
2 Characteristics of Digital Products and Processes 59
2.1. What Are Digital Products? 60
2.2. Characteristics of Information Products 64
Dependence on Individual Preference 65
Transitory or Cumulative Utility 65
Externalities of Information Products 66
Intrinsic Values of Digital Products 69
2.3. The Physical Nature of Digital Products 69
Indestructibility 70
Transmutability 72
Reproducibility 73
Physical Nature and Economic Issues 74
Product Selection Strategies Based on the Taxonomy 84
Changing Time Dependence 85
Changing Usage Patterns 85
Transfer Mode and Externalities 86
2.4. Summary 87
References 89
Page 11
Suggested Readings and Notes 89
Value of Information 89
Electronic Markets 90
Network Externalities 90
Internet Resources 91
Java Programming Language 91
Commercial Sites Index 91
Virtual Museums and Florist 91
Medical Sites on the Internet 92
3 Internet Infrastructure and Pricing 93
3.1. Internet Pipelines 93
3.2. Traffic Control on the Internet 96
Packet Switching 96
Internet Protocol Addresses 97
Transmission Control Protocol 100
Unicast, Broadcast, and Multicast 100
3.3. The Infrastructure Convergence 103
The Convergence in the Last Mile 104
Long-Haul Traffic 107
3.4. Congestion and Infrastructure Pricing 109
Ideal Economic Pricing Proposals 112
Dynamic Optimal Pricing 114
Static Priority Pricing 117
The Smart-Market Approach 118
Connection-Only and Flat-Rate Pricing 119
Voluntary User Declarations 122
Synopsis 122
3.5. Public Policy and Infrastructure 123
Public Policy for a Publicly Owned Network 124
Public Policy for a Privately Owned Network 125
3.6. Summary 127
References 130
Page 12
Suggested Readings and Notes 133
Further Readings on Game Theory 133
Internet Resources 133
The Internet Networking Infrastructure 133
Domain Name Registration 134
MBONE (Multicast Backbone) 134
IETF IP Multicasting Proposals 135
Broadband Online Services 135
4 Quality Uncertainty and Market Efficiency 137
4.1. Economics of the Lemons Market 139
Price as a Signal for Quality 141
Remedies for the Lemons Problem 143
4.2. Information Channels in Electronic Commerce 145
Sellers Provide Product Information 145
Freeware, Shareware, and Other Promotions 148
Free Products Online 148
The Economics of Try-Outs 150
Third-Party Information 152
Retailers and Other Brokers 153
4.3. Quality and Intermediaries 155
Transactional Efficiencies 156
Intermediaries as Experts 158
Intermediaries as an Information Source 161
Intermediaries as Producers 162
4.4. Intermediaries and Contracts 163
Subcontracting Systems 164
Incomplete Contracts 166
4.5. Summary 169
References 170
Suggested Readings and Notes 171
Economics of the Lemons Problem 171
Repeat Purchases and Reputation 172
Page 13
Internet Resources 173
Internet Commerce 173
Internet and Economics 173
5 Economic Aspects of Copyright Protection 175
5.1. Economic History of Copyright 176
The Property Aspect of Copyright 178
The Authorship Aspect of Copyright 183
Public Interest 184
5.2. The Nuts and Bolts of Copyrights 186
Objects Covered by Copyright 186
Terms of Copyright 187
Works That Cannot Be Copyrighted 187
Specific Rights of Authors Granted by Copyright 189
Fair Use Doctrine 190
Other Intellectual Property Laws 191
5.3. Copyright Protection and Digital Products 192
Reproduction 192
Reproductions on the Internet 193
Economic Implications of Reproduction 195
Resale and Distribution 195
Resale and the First Sale Doctrine 196
Resale Prevention and Pricing 198
Content Control 200
5.4. Market Protection Through Business Strategies 202
5.5. Policy Implications 204
Copyright and Antitrust Concerns 205
5.6. Summary 207
References 209
Suggested Readings and Notes 210
Historical Development of Copyright Laws 210
Patents and Economics 211
Page 14
Internet Resources 211
Articles 211
Internet Copyright Sites 212
Texts of Copyright Laws 212
World Intellectual Property Organization (WIPO)
Conference Resources 212
6 Signaling Quality and Product Information 213
6.1. Advertising on the Internet 214
Growth in Electronic Advertising 215
Types of Internet Advertising 217
Banner Ads 218
Selling Advertising to Consumers 220
Web Storefronts 222
6.2. The Economics of Advertising 223
The Economic Roles of Advertising 224
The Informational Content of Advertising 231
Information about Information Products 231
The Effect of Advertising on Price 234
Advertising and Product Differentiation 237
6.3. Other Strategies to Convey Product Information 239
Repeat Purchases and Reputation 239
Reputation Building in Electronic Commerce 240
Renting a Reputation 241
Shareware and Wasted Investments 242
Quality Guarantees for Digital Products 243
6.4. Marketing Strategies for the Internet 244
Myths and Popular Wisdom about Online Advertising 245
Broadcast versus Targeted Advertising 246
Push versus Pull Advertising 249
Advertisements as Commodities 251
Passive versus Active Marketing 252
Electronic Malls and Intermediaries 253
Page 15
Is Online Advertising Effective? 254
Providing Consumer Information 256
6.5. Summary 257
References 258
Suggested Readings and Notes 260
Advertising and Competition 260
Signaling 260
Internet Resources 261
Web Directory for Advertising 261
Popular Wisdom on Internet Marketing 261
Shareware Resources 262
7 Consumers' Search for Information 263
7.1. Consumer Searches and Economic Efficiency 263
Search Costs 265
Consumer Searches and Electronic Commerce 267
Digital Products and Consumer Searches 269
7.2. The Search Market and Intermediaries 270
Search Market Efficiency 271
Search Efficiency in Intermediaries 276
Search Efficiency in Informational Content 278
7.3. Search Engines on the Internet 280
Search or Surf? 281
Inadequacies of Search Engines 281
7.4. Market Efficiency In Various Information Sources 282
The World Wide Web 283
Web Searches 284
Gopher 285
Gopher Search 285
Anonymous FTP and Telnet 286
FTP Search by Archie 287
UseNet 287
Page 16
Mailing Lists 289
Electronic Messaging 290
E-mail Address Search 292
Consumer Learning and Search 292
7.5. Information Efficiency in Web Search Engines 294
Information Acquisition and Efficiency 298
Advertising versus Consumer Searching 305
7.6. Summary 307
References 309
Suggested Readings and Notes 309
Consumer Search 309
Internet Resources 310
Search Engines 310
Software Agents and Filtering 311
Robomoderation 311
8 Product Choices and Discriminatory Pricing 313
8.1. Product Differentiation and Pricing in Economics 315
What Is Product Differentiation? 315
Horizontal Differentiation 316
Vertical Differentiation 317
The Incentive to Differentiate 318
Chamberlinian Monopolistic Competition 319
Price Discrimination 320
Variations in Consumption Values: A Simple Case of
Price Discrimination 322
Product Matching 323
8.2. Product Customization 325
Sellers' Use of Transmutability 325
Gains and Losses from Customization 328
Consumer Arbitrage 328
Reduced Waste 329
Page 17
Price Discrimination 329
8.3. Use of Consumer Information 331
Primary and Secondary Consumer Information 331
Privacy and Anonymity 337
Anonymity as a Myth 337
Legal Efforts to Protect Privacy 340
Market-Based Solution to Protect Personal
Information 341
Consumer Information and Discriminatory Pricing 344
8.4. Pricing Digital Products 347
Cost Curves 348
Standard U-Shaped Average Cost Curve 348
Average Cost Curve of a Digital Product 349
Strategic Factors in Pricing 352
Quality Choices 352
Product Differentiation 355
Incentive Compatible Prices 356
Selling versus Renting Digital Products 359
Subscription and Bundling 361
The Case for Microbundles and Micropayments 365
8.5. Summary 367
References 368
Suggested Readings and Notes 369
Nonlinear Pricing 369
Product Differentiation 370
Price Discrimination 370
Internet Resources 371
Customized Internet Products 371
Privacy on the Internet 371
Cookies 372
Spoofing on the Internet 372
9 Financial Intermediaries and Electronic Commerce 373
9.1. Types of Financial Intermediaries 375
Page 18
9.2. Transactional Efficiencies 378
Phases of Transaction 379
Efficiency in Search Process 379
Negotiation and Settlement Processes 381
Financial Intermediaries: Electronic Market Case Studies 382
Internet Initial Public Offerings 383
Digital Exchange Markets 385
9.3. Transformation Functions 388
Maturity Transformation 389
Volume Transformation 389
Electronic Commerce Effects 390
9.4. Information Brokerage 390
Information Uncertainty and Risk 390
Information Trading 391
Certification and Assurance 394
9.5. Summary 399
References 401
Suggested Readings and Notes 402
Financial Intermediation and Credit Rationing 402
Internet Resources 403
Electronic Banking Resource Center 403
Encryption Technologies 403
Financial Services on the Internet 404
Digital Signature and Certification Services 404
10 Electronic Payment Systems 407
10.1 Electronic Payment Systems: An Overview 407
Payment Patterns 408
Types of Electronic Payment Systems 410
Conventional Payment Process 411
10.2. Payment Clearing Services 417
10.3. Notational Funds Transfer 421
Page 19
10.4. Digital Currency Payment Systems 426
Money as a Medium of Exchange 427
Inside Money and Outside Money 428
Needs for Electronic Currency Payment Systems 430
Anonymity in Transactions 430
Micropayments and the Internet 430
The Transferability of Value 431
10.5. Properties and Specifications of Digital
Currencies 432
Desirable Properties of Digital Currency 432
Monetary Value 432
Convenience 433
Security 433
Authentication 434
Non-Refutability 434
Accessibility and Reliability 434
Anonymity 435
Technical Specifications of Digital Currencies 435
Ecash 436
Millicent 438
Mondex 439
10.6. Evaluation and Policy Issues 440
Information Contents of Transactions 440
Transactional Efficiency 442
Monetary Effects 443
Effects on Market Organization 449
10.7. Digital Currency and Governments 451
Effects on Government Revenues 452
Regulatory Issues 453
Issues in International Commerce 455
10.8. Summary 457
References 459
Page 20
Suggested Readings and Notes 460
Quantity Theory of Money 460
Monetary Freedom 460
Electronic Payment Systems 461
Internet Resources 462
Electronic Money Resources 462
Standard Electronic Transactions (SET) 462
11 Business and Policy Implications of Electronic Commerce 463
11.1. Internet as the Great Equalizer 464
The Virtual Equality 464
The Reputational Transfer 465
Declining Average Costs and the Advantage of Size 466
Product Differentiation and Size 467
11.2. Search Service and Its Market Implications 468
Advertising in Broadcast Media 469
Search Engines and Advertising 471
Digital Cataloging Guidelines 472
Content Description 472
Search Interfaces 473
11.3. Copyright Protection Standards 474
11.4. The Use of Consumer Information 475
11.5. Digital Products and Pricing 477
Bundling and Subscription 477
Unbundling and Micropayments 482
Micropayments and Product Quality 483
Information Products and Economics 487
11.6. Taxation and the Future of Electronic Commerce 489
Taxable Item 489
Taxes on Access 490
Taxes on Transactions 492
Sales versus Transfer of Copyrights 496
Page 21
11.7. Anonymity and Legal Environment for Commerce 497
11.8. Global Framework for Electronic Commerce 501
Convergence in Spatial Markets 502
Artificial Borders 503
Uniform Commercial Environment 505
11.9. Antitrust and Regulation Policies 510
Economies of Scale and Regulation 511
Interoperability, Standardization, and Market Dominance 513
Network Externality and Monopolization 516
Monopoly and Welfare Loss: The Problem 516