The impact of electronic commerce on market structure: an evaluation of the electronic market hypothesis

Daniel, Elizabeth and Klimis, George M. (1999). The impact of electronic commerce on market structure: an evaluation of the electronic market hypothesis. European Management Journal, 17(3) pp. 318–325.



It is now over 10 years since Malone et al. [Malone, T., Yates, J. and Benjamin, R. (1987) Electronic markets and electronic hierarchies. Communications of the ACM 30(6), 484–497] set out their hypothesis on electronic markets and electronic hierarchies, termed the electronic market hypothesis (EMH). In this time the growth in the use of information technology has been dramatic. One of the most significant developments over this period, and unforeseen by Malone and his colleagues, has been the explosive growth in the internet and the opportunities this offers for the trading of goods and services. If the EMH can be shown to still be valid, it offers those developing and researching electronic commerce, valuable lessons in how markets may develop in the future.

In this paper we review the EMH and the response that it has generated in the academic literature since its publication. We consider developments that are occurring in electronic distribution in two particular industries; retail financial services and the music industry, in order to determine the current validity of Malone et al.'s hypothesis.

From the empirical analysis, it would appear that some elements of the EMH can be observed in the two industry sectors chosen. Given this observed support for the elements of the EMH, it is considered that the model is generally still valid and it could be expected that both of the sectors studied will evolve towards the end point described by the hypothesis, personalised markets, in which buyers can specify the attributes of the products they require and then use search agents to automatically compare the offerings of many suppliers. However our observations of these two industries lead us to propose a variant of this stage of Malone et al.'s hypothesis (regionalised personalised markets) and also discuss a possible further evolutionary stage (reverse markets).

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