ECONOMICS GUIDE

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Critical Thinking Questions

  1. Why would economists want to track the new economy separately from the old economy?
  2. How would you expect excess demand for a business product to affect its price on a B2B online market?

Economics On the Web

The Internet is facilitating a number of currency alternatives. One example is Berkeley Region Exchange and Development-abbreviated as "BREAD". Visit the Web site (http://www.breadhours.org/) and read "About BREAD" the find out how this local currency system operates.

  1. How is BREAD using the Internet to encourage participation in this local currency system?
  2. How do you think usage of a local currency such as BREAD is likely to fluctuate during a downturn in the business cycle?

E-Business Case in Point: The B2B Auto-Parts Market

  1. If the U.S. automobile industry is an oligopoly, how could an B2B online auto-parts market founded by the three automakers evolve into a monopoly?
  2. Is this B2B auto-parts market part of the input market or the output market? How do you know?

E-Business Case in Point: XSag.com

Traditional physical markets for agricultural supplies are being challenged by a new crop of B2B online markets. One fast-growing online market is XSag.com (http://www.xsag.com), founded by agricultural insiders Fulton Breen and Bill Barton. Their mission is to make buying and selling of seeds, fertilizers, and other agricultural supplies more efficient and more profitable for manufacturers, dealers, and farmers.

When any of the nearly 50,000 participating members log on to XSag, they can buy supplies at a fixed asking price, name their own price (which results in a purchase only if suppliers agree to sell at that price), or bid on supplies at auction. Bank of America provides financing services, and XSag offers freight services to ship purchases. As an intermediary between buyers and sellers, XSag does not become involved in tax or regulatory issues that arise from transactions on its site. How does XSag profit from its intermediary role? Every time a purchase is made, the seller pays XSag a 2% commission.

  1. If farmers can buy online and have seeds and other supplies shipped quickly and inexpensively, what is the likely effect on their inventory levels of supplies?
  2. In building its Web site, XSag had to pay for computer systems, programming, and other goods and services. Should these costs be considered when XSag decides whether to expand?

Sources: Thane Peterson, "E-I-E-I-E-Farming," Business Week, May 1, 2000, 202; Christina Dyrness, "The New Farmers Market," Raleigh News & Observer, April 10, 2000, http://www.xsag.com/common/news/archive/4-10-2000-no.html.

 

E-Business and Economics

E-Business Case in Point: PayPal

In the movement toward a cashless society, PayPal (http://www.paypal.com) is one of the Internet front-runners. This payment services site allows consumers and businesses to pay for transactions without printed checks or plastic cards. Once users have logged onto PayPal and submitted their credit card or checking account numbers, they can send money to anyone by simply entering the recipient's e-mail address and the amount. Recipients can choose to have money deposited directly in their bank accounts or have a check mailed to their homes.

Three million users have already signed up for PayPal's services. Some use the service to pay for goods purchased at online auctions, while others use the service to donate money to charity or to pay bills online. Although consumers can use PayPal for free, the site also offers low-cost business accounts for e-commerce merchants that want to accept credit card payments. In a new twist, PayPal is allowing users to send payments using mobile phones. Watch for more innovations as PayPal grapples with competition from Western Union's MoneyZap service and eBay's Billpoint service.

  1. How can PayPal make money if consumers can use its services for free?
  2. What are the benefits to buyer and seller of using a site such as PayPal to arrange payment for merchandise purchased on an online auction?

Source: Roland Jones, "E-Pay Firms Outpace Banks," The Street.com, May 23, 2000, http://abcnews.go.com/sections/business/thestreet/epay000523.html; Cheryl Rosen, "New Services Let Users Pay Bills Via Cell Phone," Information Week, June 19, 2000, http://www.informationweek.com/791/paypal.htm

 

Current events news summaries:

The B2B online auto-parts market planned by General Motors, Ford, and DaimlerChrysler is one of several B2B markets raising concerns at the Federal Trade Commission. What are the antitrust issues?

http://www.business2.com/content/channels/ebusiness/2000/08/08/15404

American Express has set up a B2B online market exclusively to serve its business customers. Why is American Express bringing in a B2B technology expert to run this online market?

http://www.thestandard.com/article/display/0,1151,17366,00.html

By 2005, Jupiter Communications believes that the total value of U.S. B2B non-services transactions will run into the trillions of dollars. Where are B2Bs headed?

http://www.redherring.com/industries/2000/0627/ind-shoptalk062700.html

 

E-Business and Economics

E-Business Case in Point: FoodUSA.com

Competition among B2B online food and meat markets is fierce, as FoodUSA.com (http://www.foodusa.com) has learned. The site opened for business just one day after six meat industry giants, including Smithfield Foods and Tyson Foods, announced their own B2B meat and poultry exchange. Other B2B food and meat exchanges include Foodexchange.com (http://www.foodexchange.com), and Sellmeat.com (http://www.sellmeat.com).

Despite the competition, Rod Heller, FoodUSA's chairman, continues to push ahead, adding new features and special services to attract buyers and sellers. For example, Peer Foods, a Chicago-based meat-processing company, decided to participate as a seller because FoodUSA.com handles transportation arrangements and credit approvals; it also offers seminars to educate industry players about e-commerce. FoodUSA.com makes money by charging sellers a fee of one-half percent on sales made through the site. So far, FoodUSA's strategy is paying off: In just six months, the site led customers to sales of more than $30 million worth of food and meat products.

  1. Although FoodUSA.com's revenues come from fees levied on sellers, do you think the site should also charge buyers who make purchases? Explain your answer.
  2. Of the four layers of the new Economy identified by the Center for Research on Electronic Commerce, where does FoodUSA.com appear to fit?

Sources: Paul Elias, "B2B Exchanges Arm For Food Fight," Redherring.com, June 23, 2000, http://www.redherring.com/industries/2000/0623/ind-foodusa062300.html; FoodUSA.com Web site (http://www.foodusa.com); Paula Lyon Andruss, "Choose Or Lose," Marketing News, October 23, 2000, 1, 11.

Source for December, 2000 update: James K. Glassman and Kevin A. Hassett, "Ganging Up," Standard.com, December 4, 2000, http://www.thestandard.com/article/display/0,1151,20421,00.html.

Current events news summaries:

B2B e-commerce is ringing up more than $335 billion in sales during 2000. How large will this part of the new economy become in the coming years?
http://www.redherring.com/industries/2000/1003/ind-supplychain100300.html

Statistics are commonly used to create and support all manner of economic theories. What statistics making headlines are being debunked by the Vital STATS site this week?
http://www.stats.org

More electronic cash alternatives are becoming available. How are CitiGroup and America Online teaming up to enter this business?
http://www.thestandard.com/article/display/0,1151,17020,00.html

 

 


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