A Model of B2B Exchanges

B2B exchanges are revolutionizing the way businesses will buy and sell a variety of intermediary products and services. It is estimated that most of the roughly $7 trillion worth of business transactions are likely to go through these new institutions within the next decade. This paper tries to understand the economics governing the transactions within B2B exchanges and analyze their likely evolution over time. In doing so, we start by providing the rigorous definitions to a number of critical concepts broadly used in the context of B2B exchanges including "market fragmentation", "critical mass" and buyer-seller "connectivity". We describe equilibrium behavior in the exchange and analyze it as a function of these critical concepts. Next, we study the evolution of the exchanges in a dynamic system where buyers and sellers enter (exit) the exchange based on the relative economic surplus (loss) they receive inside vs. outside the exchange. Our results have important implications for practice. For example, we show that equilibrium prices within the marketplace may not always decrease with lower search costs. However, buyer surplus rises with lower search costs even if prices are higher in the exchange. We also show that the general view that demand and supply (so-called "liquidity") either grows or shrinks in the marketplace may not always hold and it is quite possible to have a marketplace that is stable even though only a relatively small proportion of the market participants transact in it. Finally, we also provide conditions under which the exchange should subsidize buyers or seller in order to achieve critical mass.

Modelling global diffusion.

This paper presents a general model of global diffusion processes. The approach recognizes 'breadth' and 'depth' of adoption by first considering the sequential introduction of the innovation across countries (breadth). Given the time of introduction into a specific country, within-country diffusion (depth) is subsequently modelled. We illustrate the approach using data from the cellular telephone industry for 184countries. The proposed provides empirical insights which could not have been obtained using traditional techniques. In particular, we show that breadth and depth processes are not necessarily affected by the same socioeconomic factors. We also are able to evaluate the importance of the linkage between the two processes.

'Globalization': modelling technology adoption timing across countries.

Our paper proposes a general model of global adoption processes. In this case, the units of observation are countries which sequentially adopt a particular technology. We propose that the probability of a given country adopting a technology is a function of other 'similar' countries having adopted earlier (i.e. reflecting endogenous factors, or 'demonstration' effects), as well as a variety of country specific factors (exogenous covariates). We illustrate the approach using data from the cellular telephone industry for 184 countries. The findings generally support extant theories of cross-country adoption, whether generated by academicians or managers. In particular, we find that planned economies lag in adopting technologies, and that homogenous countries with a high level of economic development and population concentration are, on average, earlier adopters. Support is also found for the demonstration effect of earlier adoptions: the baseline hazard increases over time, and adoptions by countries significantly increase the likelihood of 'similar' countries following their example.

Comparing adoption patterns: a global approach.

New product diffusion models are 'risky and potentially misleading' (Simon 1994, p. 14). This paper proposes a method which overcomes a number of problems associated with new product diffusion models noted in the marketing literature. We illustrate the methodology in the context of better understanding global variances in new product adoption. Building on existing diffusion models and sample matching principles from international consumer research, we suggest a 'staged estimation procedure'. The procedure provides both 'sensible' and robust estimates, and remains implementable even if the diffusion process is in its earliest stage in most or all countries. In an empirical illustration covering 184 countries on five continents, we use cellular diffusion data to gain insights on how exogenous/endogenous country characteristics affect country-level diffusion patterns.

Wheatering tight economic times: the sales evolution of consumer durables over the business cycle.

Despite its obvious importance, not much marketing research focuses on how business-cycle fluctuations affect individual companies and/or industries. Often, one only has aggregate information on the state of the national economy, even though cyclical contractions and expansions need not have an equal impact on every industry, nor on all firms in that industry. Using recent time-series developments, we introduce various measures to quantify the extent and nature of business-cycle fluctuations in sales. Specifically, we discuss the notions of cyclical volatility and cyclical comovement, and consider two types of cyclical asymmetry related, respectively, to the relative size of the peaks and troughs and the rate of change in upward versus downward parts of the cycle. In so doing, we examine how consumers adjust their purchasing behavior across different phases of the business cycle. We apply these concepts to a broad set (24) of consumer durables, for which we analyze the cyclical sensitivity in their sales evolution. In that way, we (i) derive a novel set of empirical generalizations, and (ii) test different marketing theory-based hypotheses on the underlying drivers of cyclical sensitivity. Consumer durables are found to be more sensitive to business-cycle fluctuations than the general economic activity, as expressed in an average cyclical volatility of more than four times the one in GNP, and an average comovement elasticity in excess of 2. This observation calls for an explicit consideration of cyclical variation in durable sales. Moreover, even though no evidence is found for depth asymmetry, the combined evidence across all durables suggests that asymmetry is present in the speed of up- and downward movements, as durables' sales falls much quicker during contractions than recover during economic expansions. Finally, key variables related to the industry's pricing activities, the nature of the durable (convenience vs. leisure), and the stage in a product's life cycle tend to moderate the extent of cyclical sensitivity in durable sales patterns.Business cycles; Companies; Consumer durables; Econometrics; Economy; Firms; Hypotheses; Industry; Information; Market; Marketing; Pricing; Product; Purchasing; Sales; Sales evolution; Sensitivity; Size; Time; Time-series econometrics; Time series; Variables; Volatility;