toward optimal auction rules for eb2b exchanges john w. bagby center for supply chain management the...
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Toward Optimal Auction Rules for eB2B eXchanges
John W. BagbyCenter for Supply Chain ManagementThe Pennsylvania State University
Models of eCommerce Based on Traditional Contract Principles
1. Informational Model
2. Mutual Assent Model
3. Consideration Model
4. Performance Model
Informational Model
Identifying Buyers & Sellers Connecting Buyers w/ Sellers Identifying & Soliciting 3d Parties Communicating/Revising Specifications Communicating/Revising (K) Terms Collect/Distribute Counter-Party Data – Customer dossiers: for sale or barter– Eyeballs, banner ads, referrals, branding
Mutual Assent Model
Agents’ authority to bargain or obligate Negotiations, inquiries regarding terms Offers, acceptances, counter-offers, rejections, modifications, repudiation POs, confirmations, invoices, battle of the forms, std./collateral terms Trading partner agreements S/F - memo, P/E - integration, notices, traditional signatures/initials, clickwraps UETA, e-Recs, DigSig, e-Sigs, authentication
Consideration Model
Traditionally blocked enforcement unless all parties bound to new obligations – Peppercorn theory– New legally enforceable duty to do or refrain from doing
something not previously obligated – Duty NOT contingent on wish will or desire
B2B: scriveners careful, UCC exceptions B2C: site access contingent revealing data B2G: Govt could repudiate (e.g., TX, GA)
Performance Model
Currently Intangibles only: – Data, artistic expression, advice, reports, software,
images, audio, video, notices Maybe someday Smell-O-Vision or Trekies’ Transporter Room e-Doc custody, transmit, present, endorse Book entry of e-records e-Pmts UCITA: software, data
e-B2B Evolution
1st Phase: Traditional EDI– Dedicated secure communications– Trading partner agreements
2d Phase: 3d Party eXchanges – Multiple buyers/sellers – Vendor resistance to price competition
3d Phase: Industry Procure Consortia – Oligopsonists force vendor participation
Buyer-Centric eXchange Characteristics
Monopsony: buyer’s market powerCaptive suppliers reluctance Buyer likely owns &/or controls eXchangeQualification of sellers to maintain quality, confidentiality & security Buyer imposes uniformity in specifications & sale terms
Seller-Centric eXchange Characteristics
Monopoly Power Captive Buyers Seller likely owns &/or controls eXchange Qualification of buyers to maintain creditworthiness, confidentiality & security Seller imposes uniformity in specifications & sale terms
e-Market-Centric eXchange Characteristics
Opportunity for Mkt’s Independence e-Trade show Considerable visibility possible: – Parties identity & capabilities – Price, specifications, sale terms
Appears closest to perfect competition – Infinite buyers & sellers, perfect information,
standardized products Terms visibility encourages signaling
Spawning Independent eB2B eXchanges
Barriers to Entry: Participation, recruitment, membership Replicable infrastructure – Software, hardware, connectivity – IProtectable market mechanisms
Independent if high transactions fees, unique/complex MoDB Dependant if no/low transactions fees, generic/simple MoDB
Counter-Party Reliability
B2C e-Auctions – 1999 over 10,000 complaints to FTC – Misrepresentation of goods – eBay uses reputation bulletin boards for parties – Whats next? on-line credit bureau, background
checkB2B eXchange – Risks when buyers unknown to vendors – How about a Dunn & Bradstreet plug-in?
Channel Squeal
Resellers will defend turf & margins Resort to Political & Legal Means – Franchisee protection laws– Preempts vendor B2C skirting intermediaries
Reluctance to participate in eB2B eXchanges Potential for resentment & retribution Evaluate reseller value added & powers
Precedents from Existing eXchange Experiences
NASDAQ is THE Preeminent Model Unequaled transaction volume Instant visibility of price, Q, timing Liquidity, standardization, mkt. making Clearance, delivery, pmt mechanisms Distinguish IPO from secondary mkt.– Dealers vs. brokers, underwriting risk, fungible
standard “goods,” SRO
eB2B eXchange: an Auction?!?
Implications of true Auction – Standardized or identified goods– Standard terms of trade, only price varies – Never’ll be more than a spot market
eB2B eXchanges envision: – Customized goods & quantities– Joint design of product specifications – Iterative, confidential communications – RFP’s, RFQ’s, expressions of interest
Distinctions limit existing model’s utility
eB2B eXchanges Antitrust Aspects
Adam Smith’s Famous Quote: Seldom do competitors meet for merriment or otherwise than
their conversation will turn to a contrivance against the public
Close scrutiny given horizontal joint ventures & trade association activities – Convenient collusion/price fixing conduit
Exclusionary: essential facility – Division of markets, group boycotts, standards setting all
suspect
Price Signaling & Coordination
Typified by allegations in SABRE case eXchange communicates price tests Conscious parallelism price fixing method – Tacit price fixing agreement, mimic price leader
Famous hardwood industry pricing policing – Paper publication of all transactions identifying buyer,
seller, grade, quantity, date & price – Jawboning against discounts @ trade assn. mtg
OPEC’s formal policing & data reliability
Business Model & Method Patents
Business Methods ARE Patentable since State St. Bank hub & spoke mutual fund Anything [Human-made] Under the Sun is Patentable if it Produces a . . .– Useful, Concrete, Tangible Result (UCTR)
Business Method Exception was Illusory MoDB Patents: 21st Century Gold Rush Consider Impact of Priceline’s famous Reverse Auction on eB2B eXchanges
Defining Business Methods
Financial, accounting, manufacturing, logistics, etc.Need Business Modeling Conventions– What components & orchestration to UCTR
“Methods” Are Business Methods (‘99 Act) – Business Plans for VC Review– Trade Secrets – Business Models
eB2B eXchanges may Involve Innovative Business Models & MAY be Patentable – Potential fee source for eXchange
Eiplogue
eB2B eXchange Architecture is THE Fundamental Difficulty at the OutsetTwo Major Concerns Balanced:– Capture of benefits by initial participants – Avoidance of repercussions from design flaws
• Failure of Market Acceptance from operational difficulties or perceived unfairness
• Legal risks: contracting, IP, antitrust