The Promises And Perils Of Web B-To-B Exchanges

Monday, April 2, 2001
by Marc J. Lane

Reprint permission from the April 2, 2001 issue of Crain's Chicago Business.

Business-to-business exchanges connect companies electronically and help them effect real-time transactions, soon to amount to trillions of dollars a year, around the world.

Buyers and sellers — and even competitors — can transmit huge volumes of information over the Internet in nanoseconds. And they can learn everything they agree to share about one another's prices, products and plans.

Business-to-business (b-to-b) exchanges typically target a single industry, often bringing together each link in the supply chain. They serve as Internet trading houses that can integrate purchasing, selling and billing for suppliers, manufacturers, distributors and customers.

Even amid the meltdown, one industry after another is already starting to feel the revolutionary effects of b-to-b exchanges. And, without exception, participating companies are achieving efficiencies never before imagined. Over time, electronic marketplaces may do as much to re-energize the sputtering U.S. economy as further interest rate cuts or income tax relief.

B-to-b will probably work best in fragmented markets where orders are small. In some cases, sellers will command better prices by aggregating supply; in others, buyers will join forces to obtain better goods at cheaper prices by aggregating demand.

That's exactly why some antitrust enforcers fear that electronic marketplaces may eventually become breeding grounds for collusion.

They argue that companies that share competitively sensitive information might move on to fix prices. They also see the possibility that a b-to-b exchange's exclusionary operating rules might shut rivals out of a market. Or that a b-to-b exchange might gain sufficient clout to force buyers or sellers to deal only with it.

Nobody worries about a b-to-b that invites companies to participate without restriction, allows participants to keep their sensitive information confidential and doesn't promote joint action.

Such an exchange, where vendors independently peddle what they can, won't be accused of anti-competitiveness. It also won't warrant the interest of a business seeking to develop a sustainable competitive advantage. And therein lies the problem.

The Federal Trade Commission (FTC) recently issued its staff's report on a public workshop on the implications of new b-to-b technology.

The commissioners who attended the workshop heard concerns about price fixing, exclusion and the illicit sharing of information.

But they see the merits of b-to-b. And they are holding off on any new antitrust initiatives aimed at predators whose business practices might corrupt electronic marketplaces.

The FTC is right to move slowly. The agency should exercise restraint in issuing new rules that might undercut the efficiencies that will benefit businesses and consumers alike. But sooner or later, the FTC is likely to intervene and inhibit online collaborations among businesses that it deems potentially anti- competitive.

For its part, business should move fast. It needs to help shape evolving antitrust policy before the rules are written. And it needs to convince antitrust agencies that the pro-competitive benefits of electronic markets trump any concerns about their anti-competitiveness.

But business also must demonstrate that its message isn't hollow. The b-to-b alliances it pursues should have commercially legitimate purposes and only those contractual restraints it takes to achieve them. If the intent of business is to muscle its competitors or conspire against the public, the extraordinary opportunities of electronic marketplaces will be squandered.

Marc J. Lane is a Chicago lawyer and financial planner and an adjunct professor of law at Northwestern University.

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Copyright © 2001 by Crain Communications Inc.

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