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.

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

Practical examples

Relevance

See also

References

Bibliography