Private Electronic Market
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A private electronic market (PEM) uses the
Internet The Internet (or internet) is the Global network, global system of interconnected computer networks that uses the Internet protocol suite (TCP/IP) to communicate between networks and devices. It is a internetworking, network of networks ...
to connect a limited number or pre-qualified buyers or sellers in one market. PEMs are a hybrid between perfectly open markets (e.g. exchanges where there is no pre-existing relationship between buyer and seller - similar to eBay) and closed contract negotiations (such as a sealed bid tender, where there is no visibility between competitors and hence no response to
competition Competition is a rivalry where two or more parties strive for a common goal which cannot be shared: where one's gain is the other's loss (an example of which is a zero-sum game). Competition can arise between entities such as organisms, indi ...
). The core idea of PEMs is to create competition among buyers/sellers while allowing buyers/sellers to adjust all those aspects of the deal that are typically only dealt with in a negotiation. This creates a problem of "comparing apples and oranges": bids may be quite different in many dimensions and therefore cannot easily be compared. Apart from the dimension of price these could include pre-negotiated discounts (e.g. for loyalty), specific qualities, combinations of goods and services with conditional pricing, freight differentials, contract fulfillment timing, payment terms, or deliberate constraints such as market share limits.


Practical examples

VicForests, a government-owned agency in
Australia Australia, officially the Commonwealth of Australia, is a country comprising mainland Australia, the mainland of the Australia (continent), Australian continent, the island of Tasmania and list of islands of Australia, numerous smaller isl ...
, conducts bidding for native timber supply via a website called Forest Auctions. Saw Mills may submit bids specifying various conditions, including quantity, species of timber, and payment terms. Compared to the traditional sealed bid tender approach, the use of this private market reportedly resulted in a substantial revenue increase for VicForests. Swiss online auction site Firstpex allows qualified investors to buy and sell private equities to each other through a bidding process.


Relevance

The overall effect of a well designed Private Electronic Market is what is described as
allocative efficiency Allocative efficiency is a state of the economy in which production is aligned with the preferences of consumers and producers; in particular, the set of outputs is chosen so as to maximize the Economic surplus, social welfare of society. This is a ...
or in simple terms: a win-win for the seller (who maximizes revenue) and buyers (acquiring exactly what is of highest value to them). PEMs are based on
game theory Game theory is the study of mathematical models of strategic interactions. It has applications in many fields of social science, and is used extensively in economics, logic, systems science and computer science. Initially, game theory addressed ...
and combinatorial auction theory.


See also

* Dark pool * Online auction * Electronic markets


References

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Bibliography


Factors influencing suppliers’ participation in private electronic markets
Sang M. Lee (Department of Management, University of Nebraska-Lincoln, 209 CBA, Lincoln, NE 68588–0491, USA) & Seong-bae Lim (Jones School of Business, SUNY-Geneseo, 103 South Hall, 1 College Circle, Geneseo, NY 14454, USA)
Transaction automation on the internet: open electronic markets, private electronic markets and supply network solutions
Matteo Di Biagi in International Journal of Electronic Business (IJEB), Vol. 2, No. 6, 2004 Online marketplaces Financial markets Online auction