Efficient Markets and the Internet

The emergence of the Internet as a locus for commercial activities in the form of "e-commerce" has led some economists to conclude that new possibilities for development of a truly and generally efficient marketplace are being created (The Economist, 2000). Prior to the advent of the Internet, most economists recognized that they were unlikely to encounter a truly perfect, perfectly competitive, and therefore fully efficient market outside the pages of textbooks. The Internet, however, is being viewed as having precisely this potential.

Economics is defined as a science of efficiency in the use of scarce resources (McConnell, 1988). Economic efficiency is concerned with inputs and outputs -- the relationship between the units of scarce resources that are put into the production process and the resulting outputs of some desired product. Generally, economic efficiency is achieved when full employment and full production are realized, and when an optimum product-mix is established.

Economists regard an "efficient market" as one that is characterized by pure - or nearly perfect -- competition (Gwartney & Stroup, 1990). In an ideal and efficient market, costs of production are minimized and profit maximizing producers produce the goods that consumers desire most. In the purely competitive market, the "iron hand" of which Adam Smith spoke is seen as doing its job well. The actions of producers who are motivated purely by the desire to make a profit are th

Related Essays

E-commerce and Market Efficiencies Cost Tran .... Another way in which e-commerce and the Internet are creating efficient markets is through development of "cost transparency." Sinha (2000) states that .... (3177 13 )

E-commerce and Market Efficiencies Cost Tran .... Another way in which e-commerce and the Internet are creating efficient markets is through development of "cost transparency." Sinha (2000) states that .... (3177 13 )

Asset-Pricing Bubbles .... major market reversal in equity stock markets were investigated. .... Japan in the 1980s The Internet IPO stock .... 2004 The validity of the efficient market hypothesis .... (2301 9 )

THE EFFICIENT MARKET HYPOTHESIS: Not So Efficient After All? .... market hypothesis holds that capital markets are efficient .... The efficient market hypothesis was put forth long before the advent of the internet, but it .... (1215 5 )

Mass Communication Internet .... words, the Internet is the mass communications sector component that offers the most efficient and effective means of helping formerly closed-markets, cultures .... (1927 8 )

by businesses willing to carefully design and target business strategies in such diverse areas as marketing, sales, transaction and service objectives (Campbell, 2000). Similarly, as European Business Review (1999) reported, the emergence of agents who (or which, in the case of software programming) perform interactive searches on behalf of their users or clients is fostering increased efficiency in e-commerce. Agents - often in the form of software programming -- function as a way of replicating organizational functions that act as intermediaries between a purchaser and a seller. Agents lower search costs to consumers and suppliers alike, thus reducing "transaction costs" that are associated with market inefficiencies. Michael Hickins (1999) provided an overview of the growth in e-commerce in both the consumer and business-to-business markets. The following chart depicts current and projected e-commerce levels. Online Transactions, in Billions ($) Market Segment 1998 2003 Business-to-business $43.0 $1,300.0 Consumer $8.0 $108.0 (Hickins, 1999, p. 6). Hickens' (1999) thesis is that the business-to-business side of e-commerce is where the "big action is;" this is because online auctions and b

Category: Science - E