The Construction of Electronic Markets

Ian Graham

PhD

The University of Edinburgh

1999

ABSTRACT

The scope of this study is the development of electronic market systems in agricultural products and fish. These systems allow buyers to bid remotely in auctions without attending, based on descriptions of the lots. The study uses a social network approach to uncover the processes by which groups of sellers, buyers, existing intermediaries and technical experts build the electronic market systems and then use them. The research was based upon a survey of literature describing electronic market systems and empirical studies of the developers and users of electronic market systems in the United Kingdom, Iceland, Australia, Canada and the United States of America.

From these studies, patterns shaping the development of electronic markets are identified. The hard technology of hardware and software is shown to be unproblematic relative to the social barriers of gaining acceptance within a trading community. The first social barrier faced in the transition from live to remote markets is the specification of a system for describing the lots for sale. While the justifications for electronic markets stressed the opportunity to restructure agricultural supply, introduce improved price discovery mechanisms and create markets covering larger areas than live markets, the history of electronic markets shows that markets building upon existing social structures are more successful. By enrolling existing intermediaries and simulating the practices of the live market they are able to exploit the trust and expertise embedded in existing social relationships.

The case studies lead to a questioning of the dominant view of electronic commerce - that the technical feasibility of trading electronically and its apparent efficiency advantages over conventional trade make its introduction inevitable. Instead, the limited success of electronic markets in agricultural products suggest that the barriers to the formation of electronic markets are greater than an economic analysis would suggest and that the social impacts of electronic markets are less extensive than expected.