Impacts of e-Commerce and enhanced information endowments on financial services: Transparency, differential pricing, and disintermediation

Eric Clemons (), Lorin Hitt, Bin Gu (), Matt Thatcher () and Bruce Weber ()
Additional contact information
Eric Clemons: The Wharton School, Postal: 572 Jon M. Huntsman Hall, 3730 Walnut Street, Philadelphia, PA 19104,, http://opim.wharton.upenn.edu/~clemons/
Bin Gu: The University of Texas at Austin, Postal: Austin, Texas, http://www.mccombs.utexas.edu/dept/irom/faculty/profiles/index-vita.asp?addTarget=103238
Matt Thatcher: University of Nevada Las Vegas, Postal: 4505 Maryland Parkway, Box 456034, Las Vegas, NV 89154-6034, http://faculty.unlv.edu/thatcher/
Bruce Weber: Baruch College, CUNY, Zicklin School Of Business, Postal: One Bernard Baruch Way, New York, NY 10010, http://zicklin.baruch.cuny.edu/faculty/profiles/weber.html

Journal of Financial Transformation, 2002, vol. 4, 9-18

Abstract: Some effects of e-Commerce, and their implications for financial services firms, are becoming clear. The web drives transparency, and increases the information endowment of all market participants. It is harder to manipulate customers’ behavior, or to overcharge them, as their information endowment increases. Transparency drives differential pricing. Not all customers will be willing to pay the same prices for goods and services, not all customers are equally expensive or equally profitable to serve, and not all customers should be charged the same prices. Since it is difficult to overcharge customers, it is difficult to recover from pricing mistakes and undercharging customers. Thus, transparency reduces the viability of cross subsidies between customers. Equally, transparency reduces the effectiveness of bundling strategies and the role of cross subsidies between different organizational units and different products and services that previously had been priced and sold as a unit. The differential pricing enabled by the web transforms distribution channels, and enables direct and alternative forms of distribution. Some intermediaries may be bypassed altogether, while others may rapidly lose their best, most profitable, and previously most loyal customers. Even those traditional intermediaries who remain will be forced to transform their value proposition and their pricing structures. Each of these changes will require significant changes in strategy for established financial services firms, while creating opportunities for new entrants. They will also drive changes in regulation.

Keywords: e-commerce; financial institutions; pricing models (search for similar items in EconPapers)
JEL-codes: G20 M30 O32 O33 (search for similar items in EconPapers)
Date: 2002
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