Strategies for smart shopping in cyberspace

The Internet, started as a military communications system and later opened to the public, has created "cyberspace," a seemingly limitless array of resources and services. Users can communicate interactively and order products and services from electronic shopping malls, and organizations can transact business with their partners. Earlier, organizations had limited opportunities to search and select trading partners because of time and cost constraints posed by manual methods of locating and processing information on potential partners. Electronic networks like the Internet have opened up a wide array of choices of products and services. Unit cost of communication has reduced dramatically, and a vast amount of supplier/vendor information will be made available online. Unfortunately, the information explosion can quickly become an "infoglut," if unmatched by better methods of searching and processing information. Without smart strategies, total communication cost may actually increase for network-based transactions because the cost of information processing (e.g., evaluating supplier bids) has not changed significantly for nonstandard products, and it increases linearly with the number of potential trading partners. Although the Internet reduces time and unit communication cost, it may not reduce total transaction cost. Thus, it is critical for commercial Internet service providers to develop guidelines and applications whereby users can appropriate the full benefits of the technology. We suggest that such value-added services will reduce price competition among the providers. Taking the case of an organizational buyer using the Internet to select a supplier, we demonstrate that the optimal mechanism depends on the nature of product or service being sought, and the buyer's in-house development capability. In the absence of mechanisms, a buyer may spend too much effort and resources to locate a suitable supplier. Depending on the circumstances, organizations may resort to a marriage of "auction" and "sequential search." We further show that other mechanisms; for example, a participation or entry fee, are needed to improve the efficiency of the search strategy.