The Economics of E-Commerce: A Strategic Guide to Understand

Picture the Internet-to-be as a vast bazaar where all the buyers and sellers are intelligent software agents. Naturally, these hustlers of the virtual marketplace will need economists to help them optimize their strategies, and that's where this engrossing primer on applied microeconomics comes in. Oxford economist Vulkan develops an analytical apparatus featuring the assumption of rationality, the concept of equilibrium, and lots and lots of game theory to help readers understand how e-commerce will play out. As consumers deploy their ShopBots to search for the lowest prices, on-line retailers will respond with personalized products and prices, and surreptitiously compile databases on individual customers to help anticipate and manipulate their purchasing decisions. Meanwhile, online traders will use complex bidding strategies to outwit each other at eBay auctions and Internet exchanges. Vulkan intends the volume as a textbook for MBA students, but although there are graphs and some simple equations, the material is not beyond the grasp of a patient layperson. Such readers will find an engaging and lucid discussion of basic principles in micro-economics, covering the ways in which competition, collusion, transaction costs and incomplete information affect prices and profits, and illuminating such mysteries as why no one trusts used-car salesmen. While providing a useful overview for consultants and Web designers, the insights here are as applicable to real life as they are to the on-line world.