e-commerce@its.best.uk - Fatal System Error

MARKET AND GOVERNMENT FAILURES AFFECTING E-COMMERCERoot causes Market and Government failures Barriers to e-commerceUncorrectedMarketFailureImperfect competition:eg control of gateways,access prices.Externalities: eg networkexternalities• New technologies• Globalisation• Business andindustrydiscontinuities(includingderegulation)– New businessforms– New ways ofdoing businessEFFICIENCYGovernmentFailureTransactor uncertainty:eg security, privacy.Failure in other marketseg labour marketsRent seeking behaviour:eg regulatory captureImperfectinformationImperfectanalysisOmmissioneg absence of legal,regulatory andtax frameworkExamples:– Access– Security– Copyright– Competition– Privacy– ConsumerprotectionEQUITYSocialExclusionErrorFigure 5.1However, traditional approaches to regulationare too slow and inflexible to cope with thepace of change in e-commerce markets.5.6 Co-regulation is a partnership betweengovernment and business designed to put inplace an overall framework for e-commerce.Government defines the public policyobjectives that need to be secured, but tasksindustry to design and operate self-regulatorysolutions and stands behind industry ready totake statutory action if necessary.5.7 The advantages of a co-regulatoryapproach are:flexibility and adaptability. Voluntarycodes and other self-regulatorymechanisms can more easily be adaptedto technological changes than statutoryregulation;timeliness. In contrast to the rate ofchange in the world of e-commerce,Government processes can be very slow.For example, the DTI Bill determining theallocation of radio frequency spectrum –critical to developing new mobile accesschannels, amongst other things – took5 years to reach the statute book. EUDirectives can take a minimum of 3 yearsto come into effect. Further, technologyspecific Government regulations can be1DTI White Paper ‘Modern Markets: Confident Consumers’ Cm 4410 July 1999outmoded by the time they are enacted.Self-regulatory regimes can be changedmore easily and quickly;appropriateness. Regarding potentialchallenges as often profitable new businessopportunities, for example requiring newstyles of intermediary, rather than asproblems for Government to resolve; andit will help create a distinctive “Basedin the UK” brand for UK e-business bygiving consumers here and overseas trustin e-businesses based in the UK andenhancing the attractiveness of the UKas a location for e-businesses.5.8 The main disadvantage of aco-regulatory approach is the risk thatself-regulation by existing firms will resultin barriers being erected to keep out newcompetitors. But this can be addressedthrough the vigilance of the competitionauthorities.5.9 Co-regulation has already been adoptedby the Government in many areas. Forexample, the Internet Watch Foundation is aself-regulating response to harmful and illegalcontent on the Internet. The recentlylaunchedTrustUK initiative 1 is an industry-ledon-line consumer protection scheme, whichwill accredit e-commerce codes of conductE-commerce@its.best.uk25