A private electronic market (PEM) uses the
Internet
The Internet (or internet) is the global system of interconnected computer networks that uses the Internet protocol suite (TCP/IP) to communicate between networks and devices. It is a '' network of networks'' that consists of private, pub ...
to connect a limited number or pre-qualified buyers or sellers in one
market
Market is a term used to describe concepts such as:
*Market (economics), system in which parties engage in transactions according to supply and demand
*Market economy
*Marketplace, a physical marketplace or public market
Geography
*Märket, an ...
. 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
eBay Inc. ( ) is an American multinational e-commerce company based in San Jose, California, that facilitates consumer-to-consumer and business-to-consumer sales through its website. eBay was founded by Pierre Omidyar in 1995 and became ...
) and closed contract negotiations (such as a
sealed bid
Seal may refer to any of the following:
Common uses
* Pinniped, a diverse group of semi-aquatic marine mammals, many of which are commonly called seals, particularly:
** Earless seal, or "true seal"
** Fur seal
* Seal (emblem), a device to imp ...
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, indiv ...
). 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
A comparison of apples and oranges occurs when two items or groups of items are compared that cannot be practically compared, typically because of inherent, fundamental and/or qualitative differences between the items.
The idiom, ''comparing ...
": 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, 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
An online auction (also electronic auction, e-auction, virtual auction, or eAuction) is an auction held over the internet and accessed by internet connected devices. Similar to in-person auctions, online auctions come in a variety of types, with ...
site
Firstpex allows qualified
investors
An investor is a person who allocates financial capital with the expectation of a future return (profit) or to gain an advantage (interest). Through this allocated capital most of the time the investor purchases some species of property. Type ...
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 consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the mar ...
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 and
combinatorial auction
A combinatorial auction is a type of smart market in which participants can place bids on combinations of discrete heterogeneous items, or “packages”, rather than individual items or continuous quantities. These packages can be also called lot ...
theory.
See also
*
Dark pool
In finance, a dark pool (also black pool) is a private forum (alternative trading system or ATS) for trading securities, derivatives, and other financial instruments.[Online auction
An online auction (also electronic auction, e-auction, virtual auction, or eAuction) is an auction held over the internet and accessed by internet connected devices. Similar to in-person auctions, online auctions come in a variety of types, with ...](_blan ...<br></span></div>
* <div class=)
*
Electronic markets
Electronic markets (or electronic marketplaces) are information systems (IS) which are used by multiple separate organizational entities within one or among multiple tiers in economic value chains. In analogy to the market concept which can be vie ...
References
{{Reflist
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