Business models and market mechanisms

Abstract

The paper examines business models utilizing three different market mechanisms on the Internet: direct search, broker, and dealer. Utilizing capital markets and information theory to compare the business models, the research looks at specific market mechanisms instantiated in PriceScan, NetMarket, and Bottom Dollar. The web sites supporting the market structures were also evaluated on trust mechanisms, reputational ratings, information quality, availability, speed, and liquidity. Twenty standard, consumer products offered through these markets were evaluated over a three-month period examining pricing, availability, and speed of response.There were significant differences across the three models. Direct search and broker models had the highest availability and quickest response. Brokers made the greatest use of trust mechanisms. Direct search and dealers offered the greatest liquidity. Information quality was the highest in the dealer, with strong market, price movement, and product information. Lowest overall prices were consistently evident in the direct search. Allocational efficiency was difficult to determine, but an evaluation of the earlier efficiencies suggests that in situations where consistent market availability is not required, overall the direct search model is the most allocationally efficient. In situations requiring immediate market availability, the broker model appears to be the most allocationally efficient with quick response, competitive prices, and good information quality.The paper extends earlier work in business models and market efficiencies by comparing specific instantiations of the models and developing definitions for and a typology of efficiencies based on capital markets theory. In addition, the paper includes technical and qualitative analysis of Web sites supporting the business models.