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Adverse Effects of E-Commerce 41
Many firms may use a low price strategy to grab the market and eliminate the
competition. Several mergers and alliances, in which two or more firms combine to
achieve a large market share and have large economies of scale, can result in
eliminating meaningful competition (Penbera, 1999).
Impact on Competition Policy
E-commerce offers the ability to expand markets. By expanding the size of the
market, the e-commerce could create opportunities to dominate markets. Persistence
of price dispersion across Internet markets and the absence of noticeable
price reductions has led to concerns that the cost structure of some Internet
markets, which could ultimately result in a less competitive industry (Anonymous,
2000).
The scope for noncompetitive behavior is perhaps strongest among “digital”
and knowledge intensive products. For such products, once the first copy is
produced (like a software application), the cost of a second copy is close to zero.
Due to the large marketing capital needed to develop visibility and a brand name,
start-up companies are finding it difficult to enter the market. Low contestability is
resulting in highly concentrated scenarios where one big brand takes it all and this
has made an impact on competition policy (Penbera, 1999; Anonymous, 2000).
Impact on Labor Costs and Employment
E-commerce is facilitating the shift from the mass labor paradigm to a
knowledge-worker paradigm. Productivity enhancements and labor cost savings
are major driving forces behind e-commerce activities. E-commerce efficiencies
have displaced thousands of clerical personnel in manufacturing and service sectors
and created large gains in unemployment among less-skilled workers. This shift has
enormous economic implications for more populated countries that have relatively
cheap mass labor available and use cheap labor as strategy to improve their
competitiveness and overall growth. The shift from mass to knowledge labor has
already created a shortage of knowledge workers in several countries where the
education system and technology infrastructure have not been very strong (Penbera,
1999).
Impact on Prices
Electronic commerce is widely expected to improve efficiency due to reduced
transaction and search costs, increased competition and more streamlined business
processes. Lower search costs may also lead to Internet consumers being more
sensitive to price changes. By reducing search costs and increasing the flow of
information, e-commerce might effectively shift power from producers to consum-
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