The Evolution of Intermediaries in E-Commerce

The Evolution of Intermediaries in E-Commerce

Nirvikar Singh (University of California, Santa Cruz, USA)
DOI: 10.4018/978-1-4666-9787-4.ch004
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Intermediary Types

The term ‘intermediary’ covers many different types of functions, making an ideal classification difficult. An intermediary as a literal ‘middleman’, coming between a buyer and a seller in a specific transaction, represents a narrow scope of the term. Examples of such intermediaries are specialists on the floor of the New York Stock Exchange (NYSE) and real estate brokers. However, within the entire value chain for a product or service, from raw inputs to final consumption, many organizations or individuals can be viewed as intermediaries. Distributors and wholesalers, and even retailers are intermediaries between producers and consumers. In this broadest sense, computer and equipment manufacturers like Dell are intermediaries, collecting hardware and software components from a variety of suppliers, and assembling them into computers for final use. Similarly, a logistics firm like UPS is an intermediary when it delivers the Dell computer to the household or firm that ordered it.

A crucial difference between Dell and UPS, providing a first basis for classifying intermediaries, is ownership (Besanko et al, 2008). When Dell obtains components and assembles them into a working computer, it takes ownership of those components, as well as ultimate responsibility for delivery: the buyer does not make a separate transaction for delivery. UPS is also an intermediary, but it does not take ownership of the computer. Hence we can divide intermediaries into those which take ownership, creating two separate market transactions, and those which do not. A specialist on the NYSE floor mostly plays the latter role, matching brokers representing buyers and sellers. Sometimes the specialist also buys or sells out of his or her inventory, thus taking ownership as well. Note that online retailing blurs these boundaries: a consumer may purchase on Amazon.com without being too aware of whether Amazon is the direct retailer, or merely providing a platform for another retailer.

Key Terms in this Chapter

Economies of Scope: A situation in which average costs of production of for different goods or services are lower when the goods or services are produced together rather than separately.

Disintermediation: Elimination of intermediaries or middlemen by internalizing their functions on either side of the transaction or value chain.

Value Chain: The sequence of activities that directly transform raw materials into final goods and services for consumption, as well as activities that indirectly support these transformations.

Value Creation: The process of increasing the consumption or use value of tangible and intangible goods, through physical, chemical, locational and other transformations.

Economies of Scale: A situation in which average or unit costs of production for a good or service are lower for higher volumes or levels of production.

Customization: A process of creating or modifying a product or service according to individual or personal specifications or preferences.

B2B: Business-to-business; used to refer to inter-firm transactions.

Intermediary: Any individual or organization that provides a value creating function somewhere along the value chain, excluding initial production of raw materials and final consumption.

B2C: Business-to-consumer; used to refer to sales to individuals in households.

Agent: Anyone who is assigned a task on behalf of another.

Transaction Costs: Most generally, any resource costs associated with market or non-market transactions. More specifically, costs associated with completing a transaction, including fulfillment and payment.

C2C: Consumer-to-consumer; used to refer to transactions between individuals.

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