The Nature of E-business: Do Transaction Costs Matter?

Abstract

As a specific institution of distributive trades, e-commerce displays similarities with retail stores and mail order companies. As well as providing theoretical support for the assumption that e-commerce is a way to sell certain goods and services at prices potentially lower than those of traditional distributive channels, this paper describes its patterns of diffusion in some selected European countries. The paper has three main purposes. Firstly, it gives an overview of the diffusion of Internet transactions among European countries, showing the increasing importance of B2B with respect to B2C. Secondly, it challenges the view of e-commerce as a «technological revolution», by pointing out its nature as a cost-minimizing marketing channel. In particular, it shows how, under certain circumstances, e-commerce is a source of transaction cost advantages analogous to those yielded by mail order business. Thirdly, the paper identifies the circumstances under which e-commerce sales might achieve a significant level of penetration among those small and medium sized enterprises that would otherwise incur high costs in organizing a proprietary distributive channel.