Industry Value Chains

It is important to explore how purchasing and selling transaction patterns are likely to change and how selling prices will be affected. Figure 1 depicts three variants of traditional value-added chains and the resulting growth in value added and selling price. It should be noted that the authors consider here only industry value chains terminating with the consumer, as opposed to intermediate goods value chains. The example used here, i.e., the purchase of a high-quality shirt, is based on actual data (Thornton, 1994) not even involving electronic sales channels. It is highly likely that actual costs savings to the consumer may even be higher than depicted here. The first chain in Figure 1 depicts the traditional chain of market hierarchies, i.e., producer, wholesaler, retailer and consumer. An alterative chain, the second chain, bypasses the wholesaler, resulting in a lower purchase price for the consumer. When appropriate information technology can reach the consumer directly, as shown in the third chain, the manufacturer can utilize the NII and leap over all intermediaries. In reality, the manufacturer is likely to retain as high a portion of the savings enjoyed by the consumer, unless, of course, market forces make this impossible.

An additional scenario is conceivable and highly likely to emerge: With the NII unfolded, the consumer could easily access a sufficient number of single-source sales channels through a market choice box or an interactive agent to search shirt manufacturers for a suitable shirt. In this setting, the market maker effect may give the consumer a minimum price, but the market maker would not have a significant transaction profit (Bakos, 1991, p. 301).

In yet another scenario, the consumer could access a set of single-source sales channels through a market choice box or an interactive agent to search shirt manufacturers for the desired shirt. In this setting, the market-maker effect may give the consumer the lowest price; in turn, though, the market-maker would not have a significant transaction profit ("Hopes and fears ..., " 1994).