Question

Chapter 1 1. What is a network effect and why is it valuable? 2. What is information asymmetry? Describe how has it changed or stayed the same with the advent of e-commerce 3. What are the unique features of e-commerce technology? Describe the basics of each feature and how it relates to e-commerce.

Answer 1

(1): Network effect can be defined as the incremental and exponential benefit that accrues to users of a particular platform when new users join the platform. For example a product or a service gains additional value when more and more number of people start using it and this is the network effect. Network effect is valuable because it creates a bandwagon effect and leads to a situation in which the network becomes more valuable. This leads to a positive feedback loop in the long run.

(2): Information asymmetry is the imbalance that exists between two parties in a communication process or negotiation process. In case of information asymmetry one of the parties in a communication process or negotiation process has more knowledge and hence enjoys a competitive advantage over the other party. With the advent of e-commerce information asymmetry has reduced and come down. This is because e-commerce enables better access to knowledge with the use of internet and the World Wide Web. This better access to knowledge ensures that the imbalance with regards to information is brought down and eventually eliminated altogether.

(3): Prominent unique features of e-commerce technologies are ubiquity, global reach, universal standards, and interactivity. Ubiquity of e-commerce can be attributed to the fact that internet and web technology is available everywhere and every time. This is related to e-commerce as market place can be created anywhere easily. Another important feature of e-commerce technology is global reach and this is because technology can cross national boundaries and thus enable e-commerce to touch several people without many constraints. E-commerce technology is based on universal internet standards and hence ease of operations is there across different regions. Lastly e-commerce technology is interactive and users can be pro-active when being a part of e-commerce transactions.