Efficient Markets and the Internet

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

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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
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Approximate Pages = 10 (250 words per page)

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