Value Chains Opportunities and Risks

One may identify four areas of opportunity and risk for stakeholders in the above described scenario:

1. Benefits to the consumer. The consumer will have free market access to all suppliers willing to pay an interconnection cost. The consumer will have maximum choice at lower price. If and when interactive agents are feasible, the consumer will have access to a market price without market-maker profits attached, but with the more efficient levels of market pricing from single channel suppliers.
2. Lower coordination costs throughout the industry value chain. Electronically linked producers and retailers will be able to lower their costs by reducing intermediary transactions and unneeded coordination because of electronic transactions directly with the consumer.
3. Lower physical distribution costs. Delivery costs will be minimized in two ways. Firstly, information will be transmitted electronically and much lower electronic distribution costs will be substituted. Secondly, as each element of the industry value chain is bypassed, a physical distribution link and related inventory carrying costs will be eliminated (Cf., Figure 1, value chains 2 and 3).
4. Redistribution and potential reduction in total profits. The lesson of the airline reservation systems, the initial behavior of Schwab's OneSource, and market economics indicate that many companies will need to face smaller profit margins. Such smaller profit margins may be compensated for by increased volume.