Complete Research Paper from attached feedback

Executive Overview

Executive Overview Application

Uses and Consequences of Electronic Markets: An Empirical Investigation in the Aircraft Parts Industry By: Vivek Choudhury, Kathleen S. Hartzel, and Benn R. Konsynzki Page 471

It is widely accepted that explosive growth in electronic commerce will transform today's mar- ketplaces. But which aspects of an industry are likely to be most affected, and why? It has been suggested, for example, that electronic markets may lead to significant price competition and may eliminate the role of intermediaries. But little evidence exists to support or counter such claims.

This article reports on a study of an established electronic market within the airline parts indus- try in order to produce some fresh insights into the likely affects of electronic markets. The Inventory Locator Service (ILS) was started in 1979 by two brokers to provide, among other functions, an electronic meeting ground for sellers to list their parts inventories and for buyers (mostly airlines) to identify all sellers listing a specific part. The system receives about 24,000 inquiries a day from over 3,000 users. The parts listed are almost all used parts, and these parts fall into two general categories: purchases for inventory and emergency purchases for air- craft that are grounded and need a part. Because of the high cost of grounded aircraft, the pri- mary imperative with their parts is to find the part as soon as possible. Interestingly, although ILS provides a field for price, it is rarely filled. The ILS is used to identify sellers with parts, but it is not used to either select a seller or to execute a purchase.

The authors both interviewed key stakeholders across the industry and received survey responses from 30 airlines, 17 of which used ILS. Their analysis of these data produced four clear observations regarding the likely affects of electronic markets:

• Buyers carefully trade off the benefits of process routinization and establishing long-term relationships against the benefits of an electronic spot purchase with lower prices. The latter may be most appropriate for products with high variability in availability and price, low frequency of purchase, and high unit value.

• Intensified price competition will not necessarily occur, particularly if factors other than price (such as availability) dominate the market. ILS is used much more to identify parts for grounded aircraft than for inventory purchase.

• Brokers will still exist, but their value-adding role in the marketplace will change. Brokers in the airline parts industry have taken on the critical role of validating who is both likely to actually have a listed part and to faithfully represent the condition of the part.

• Determination of the scope (regarding both data and functionality) of an electronic market is critical in effecting marketplace transformation.

MIS Quarterly/December 1998 Ixix