Re: 2011 ZA Q1

[William Toh]

My assumption here is that the question is from an ISORG exam.

Your framework is good and quite complete.  However, it is not clear if you understood the key motivations of the question.

B2C involves 2 key stakeholders who are economic agents - autonomous, value maximising, opportunistic.

For B2C e-business to succeed, ICT must somehow be able to reduce the frictions that prevent these economic agents

from making exchanges with each other, ie. transaction costs.

While ICT has the potential to reduce the search, contracting and control costs incurred in any economic exchange,

this can happens only under very specific conditions - ie. when ICT can reduce uncertainty, bounded rationality or opportunistic behavior

surround the transactions.

Otherwise, ICT may actually increase transaction costs, which will eventually lead to the failure of the B2C e-business.

We need to keep in mind that the use of ICT itself is a transaction cost.  So for e-business to be successful, it is necessary

that ICT can reduce much more transaction costs than it incurs.

This is the fundamental concept that is being tested by the question.  While your framework has several elements that address this

concept, it is necessary that you communicate this concept upfront before diving into the details.

On Tue, Mar 27, 2018 at 12:04 AM, KEK FONG YEE (GUO FANGYU) <fygfk...@mymail.sim.edu.sg> wrote:

Hi Sir, i am not very sure on how to answer the following question, please advice on whether my thoughts are correct.

"imagine you are an entrepreneur who decides to invest in B2C e-biz to redesign the existing business. Explain why the transaction cost theory can be useful to identify the advantages and risks of this new business model."

1.What is B2C e-business

• a company that does most of its transactions on the internet.

2. What are transaction costs?

• transaction costs are investments incurred by economic agents to reduce their uncertainty and BR surrounding the terms of economic exchange.
• explain what are search, contract and control costs

3.Link of TCM and e-business

• TCM views technology as a means to reduce transaction costs so that exchanges can be made more efficient and encourage more economic activity 
• how ICT affects ebiz:act fuels growth of electronic marketplaces
• how the malone effects of ICT affect transaction costs

4.How e-biz can reduce transaction costs.

• increases availability, speed and amount of information exchanges which mitigates BR, OB, U and SN which are factors affecting transaction costs.  if can mitigate these factors, b2c info systems can help reduce transaction costs of consumers and encourage the use of the electronic channel for purchasing.
  
• How it reduce search costs:convenience and universal access, no need travel to physical store to look for the things they need. 
• How it reduce contract costs: reduce BR of reputation of online merchants or products, e.g. reviews
  
• how to reduce control costs: makes use of payment intermediaries to monitor on behalf of the biz and customers 
• How it reduce transaction costs for the business: disintermediation of brick and mortar store, operation costs, cost of hiring sales staff, rent,control downstream supply chain process, get close to end consumer, know more about their needs. can also pass cost savings to their customers.
• example: Amazon.com-huge catalogue and search function,tracks browsing behaviour of consumers; input into recommendation engine;filter for customers, reduces BR of customers, stock availability of books indicator. all these reduces search costs
•  amazon.com-reviews of sellers and products;reduce contract costs
• amazon.com-payment mode: paypal, offers tracking of parcel 

5.risks of b2c e-biz

• perishable goods, housewives prefer to shop in person
• need to cater to shopping behaviour of customers or else the business model may not work.
• eg. peapod vs webvan
• privacy and fraud issues due to vulnerability of internet - this increases control costs