Chapter 9


1. Why were so many entrepreneurs drawn to start businesses in the online retail sector initially?

Many entrepreneurs were drawn to start businesses in the online retail sector initially because it was one of the largest market opportunities in the U.S. economy. Many believed that the Internet would revolutionize the retail industry because:

         Search costs and transaction costs would both be dramatically reduced.

         Market entry costs would be comparatively low.

         Traditional offline physical stores would be forced out of business by falling prices on the Internet.

         Many industries would be disintermediated, destroying the middleman and the associated markups, establishing the Web as the single dominant marketing channel.

5. Name two assumptions e-commerce analysts made early on about consumers and their buying behavior that turned out to be false.

Two assumptions that e-commerce analysts made early on about consumers and their buying behavior that turned out to be false were that they would be rational and cost-driven. Instead, consumers are attracted to stable, well-known retail brands and have demonstrated that other factors such as reliability, trust, fulfillment, and customer service are equally important. This does not mean consumers are non-rational, but simply that they are willing to pay extra for branded goods and services.

10. Which is a better measure of a firmís financial health: revenues, gross margin, or net margin? Why?

The best measure of a firmís financial health is net margin, which sums up in one number how successful a company has been at making a profit on each dollar of sales. A negative net margin means that a company is losing money on each sale.


15. What is the most common use of real estate Web sites? What do most consumers do when they go there?

The most common use of real estate Web sites is conducting research, which influences offline decisions. Users visit real estate sites to view the properties that are available for purchase and to research appraisal reports, neighborhood sales histories, school district data, crime reports, as well as social and historical information on neighborhoods. They can also link to mortgage lenders, credit reporting agencies, house inspectors, or surveyors, and use other features such as loan mortgage calculators.

20. Why are on-demand service companies viewed as being disruptive and controversial?

Sharing economy firms can significantly lower the cost of various services like urban transportation and lodging, by creating an online platform that uses an online reputation system to establish a trusted relationship between sellers and consumers, enabling owners of underutilized resources to sell access to those resources to consumers who prefer not to, or are unable to, buy those resources themselves. As such they can be very disruptive to existing firms and business models. However, they can also be controversial, for a variety of reasons. For instance, with Airbnb, property renters do not have the regulatory or tax burdens that hotel owners have; the same goes for Uber drivers compared to traditionally licensed taxicab drivers. It is possible that the success of Airbnb could greatly reduce the demand for regulated hotels. The possibility of negative outcomes from transactions on these sharing economy sites (e.g., a driver robs or harms a passenger, or an apartment is destroyed by renters), is leading both firms to require liability insurance, or to offer such insurance for free. It is unlikely that sharing economy firms will escape regulation altogether.