Impacts of the electronic marketplace on transaction cost and market structure

Electronic markets have become increasingly popular alternatives to traditional market forms over the last few years. This article explains how electronic markets can be used either to create new markets or to strengthen existing markets, and provides examples of the impact alternative electronic market applications can have on firm competitiveness and market structures. The central claim of this article is that it is necessary to analyze the impact of electronic market implementation on search, price discovery, and trade settlement in order to understand the impact of the electronic marketplace on firms and markets. Two forms of electronic marketplaces-electronic brokerage and electronic auction-are examined from the perspective of fundamental economic factors that influence total transactions costs and the efficiency of alternative market structures. Social and organizational barriers to successful adoption of electronic markets are also discussed.