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Title: The Economics of Electronic Commerce
Authors: Choi, Stahl, and Whinston
Publisher: Macmillan Technical Publishing
Copyright: 1997
ISBN: 1-57870-014-0
Pages: 626
Price: $49.99
Rating: 90%
Writing one of the first books on any subject is a daunting task, especially when the topic is the rapidly evolving field of electronic commerce. One good strategy, followed by the authors of The Economics of Electronic Commerce, is to see how classical microeconomic concepts apply in the new realm and make cautious recommendations about how those traditional notions might be extended, modified, or replaced in the future.

After a quick overview of the problem space, the authors set out five salient characteristics of digital products:

  • Transfer mode (further subdivided into delivered products, which are downloaded at once or in piecemeal fashion, and interactive products)
  • Timeliness
  • Intensity of use (single-use products equating to non-durable goods, multiple-use products to durable goods)
  • Operational usage (document versus executable file)
  • Externalities associated with the product (is the product more valuable with more or fewer purchasers)

The authors make good use of this framework throughout the book, offering the student a solid platform for analyzing the issues presented.

One interesting theme the authors pursue is the relative ease with which digital products may be customized for individual consumers. Significant front-end expenditures are required, of course, but once a productís components are generated they can be combined as required by manufacturers. To put this ability in terms of physical manufacturing, consider that a theoretically optimal flexible manufacturing system would have set-up and production times of zero (again ignoring the front-end production work). While set-up and production times to assemble a software package and burn a compact disc or transmit it over the Internet are certainly non-zero, they approach theoretical optimality much more closely than any physical flexible manufacturing system developed to date.

I was also happy to see that the authors were willing to admit that the optimal pricing strategy for Internet access, based on individual bandwidth usage and the resulting impact on network congestion, would be extremely unpopular at first. Their discussion of consumer information and how its availability affects sellersí pricing strategies is also quite good. The last word they offer in the general discussion on how consumer information affects pricing is to cite research indicating that knowledge about the market as a whole can improve economic efficiency without reducing consumer welfare, with the caveat that individually identifiable information can lead to discriminatory pricing based on a consumerís willingness to pay. Not the most palatable conclusion from a consumerís perspective, but economically sound.

Readers wonít need much in the way of economic theory to benefit from The Economics of Electronic Commerce. I left off my economics study in college after introductory microeconomics and could readily comprehend the authorsí arguments. Instructors unsure of their studentsí theoretical backgrounds could surely cover everything needed to understand the text within an hour.

Curtis D. Frye ( is the editor and chief reviewer of Technology and Society Book Reviews.  He is the author of three online courses and nine books, including Privacy-Enhanced Business from Quorum Books.