The Effects of Business-to-Business E-Commerce on Transaction Costs

53 Pages Posted: 24 Nov 2000 Last revised: 6 Sep 2002

See all articles by Luis Garicano

Luis Garicano

IE Business School; Centre for Economic Policy Research (CEPR)

Steven N. Kaplan

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); University of Chicago - Polsky Center for Entrepreneurship

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Date Written: November 2000

Abstract

In this paper, we study the changes in transaction costs from the introduction of the Internet in transactions between firms (i.e., business-to-business (B2B) e-commerce). We begin with a conceptual framework to organize the changes in transaction costs that are likely to result when a transaction is transferred from a physical marketplace to an Internet-based one. Following Milgrom and Roberts (1992), we differentiate between the impact on coordination costs and motivation costs. We argue that it is likely that B2B e-commerce reduces coordination costs and increases efficiency. We classify these efficiencies into three broad categories (1) process improvements; (2) marketplace benefits; and (3) indirect improvements. At the same time, B2B e-commerce affects incentive costs. In particular, we discuss the impact of the introduction of e-commerce on informational asymmetries. We implement this framework by analyzing detailed internal data from one Internet-based firm to measure process improvements, marketplace benefits, and motivation costs. We present less detailed data and analyses for one other firm. Our results suggest that process improvements and marketplace benefits are potentially large. We find little evidence that informational asymmetries are more important in the electronic marketplace we study than the existing physical ones.

Suggested Citation

Garicano, Luis and Kaplan, Steven Neil, The Effects of Business-to-Business E-Commerce on Transaction Costs (November 2000). NBER Working Paper No. w8017. Available at SSRN: https://ssrn.com/abstract=251270

Luis Garicano (Contact Author)

IE Business School ( email )

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Centre for Economic Policy Research (CEPR)

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United Kingdom

Steven Neil Kaplan

University of Chicago - Booth School of Business ( email )

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National Bureau of Economic Research (NBER)

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European Corporate Governance Institute (ECGI) ( email )

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University of Chicago - Polsky Center for Entrepreneurship

Chicago, IL 60637
United States

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