Published online by Cambridge University Press: 22 September 2009
As buyers and sellers do battle in the electronic world, the struggle should result in prices that more closely reflect their true market value.
(Business Week, May 4, 1998)Most companies are faced with the problem of pricing their products. This problem has been a focal research question of microeconomics and marketing. Microeconomists have developed a sound framework of markets which is a good starting point for an analysis of electronic markets. This section will provide a brief overview of microeconomic theory and the morphology used to describe different market structures. This framework provides a useful terminology for thinking and communicating about markets, and describes the basic ideas of price-setting.
Section 3.1 will focus on a number of market structures which are well analyzed in microeconomic theory. Of course, this can only be a rough description of the microeconomic theory, and by no means complete. (For a more rigorous discussion see Varian, 1992, 1996c; Mans field, 1996; Browning and Zupan, 1999.) Section 3.2 will describe differential pricing, which is of particular importance to electronic commerce.
Market Structures
An economic environment consists of individual economic agents, together with an institution throughwhich the agents interact (Browning and Zupan, 1999). The agents may be buyers and sellers, and the institution may be a particular type of market.
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