Business-to-Business Electronic Commerce

Abstract

This paper, prepared for the Journal of Economic Perspectives, provides an overview of the economic issues arising in business-to-business (B2B) online commerce. Just as the industrial revolution mechanized firms' manufacturing functions, the information revolution is now mechanizing firms' marketing functions. Industry insiders have forecast tremendous growth in B2B e-commerce, most predicting transaction volumes in the trillions of dollars by 2005. We begin by defining the scope of B2B e commerce, and describing its possible benefits. Next, we consider the intermediation services and transaction mechanisms offered by B2B companies, drawing on models of market microstructure and of auctions. We provide an overview of the new entrants, examining the markets they propose to serve and the types of services that they propose to provide. We include a table of 49 examples of newly established B2B Web sites. Next, we comment on the possible effects of B2B e-commerce on economic productivity. We then examine competition between B2B companies and the industry structure we might expect this competition to generate. Finally, we explore the potential effects of B2B e-commerce on the organizational structure of the companies that are the purchasers and suppliers in the B2B markets.