Chapter 10

E-Commerce: Digital Markets,

Digital Goods
True-False Questions
1.

E-commerce refers to the use of the Internet and the Web to transact business.
Answer: True

2.

Reference: p. 396

Difficulty: Medium

Reference: p. 397

Difficulty: Medium

Reference: p. 400

Difficulty: Medium

Reference: p. 403

Mobile commerce is the use of wireless devices to conduct e-commerce transactions from
any location.
Answer: True

9.

Difficulty: Medium

An online syndicator aggregates content or applications from multiple sources, packaging

them for distribution, and reselling them to third-party Web sites.
Answer: True

8.

Reference: p. 396

A banner ad opens automatically and does not disappear until the user clicks on it.
Answer: False

7.

Difficulty: Medium

Disintermediation provides major benefits to the distributor.

Answer: False

6.

Reference: p. 392

Information asymmetry exists when one party in a transaction has more information for the
transaction than the other party.
Answer: True

5.

Difficulty: Easy

The Internet shrinks information asymmetry.

Answer: True

4.

Reference: p. 392

Retail consumer e-commerce is currently growing at single-digit rates.

Answer: False

3.

Difficulty: Easy

Difficulty: Easy

Reference: p. 404

Web sites can gather bountiful detailed information about customer behavior and
demographics.
Answer: True

Difficulty: Easy

159

Reference: p. 405

10.

Blogs have had a significant impact on political affairs.

Answer: True

11.

Reference: p. 412

Difficulty: Medium

Reference: p. 415

Difficulty: Easy

Reference: p. 416

Difficulty: Medium

Reference: p. 416

Difficulty: Medium

Reference: p. 417

Digital checks are less expensive than credit cards.

Answer: True

20.

Difficulty: Hard

Digital cash can be used for micropayments or larger purchases.

Answer: True

19.

Reference: p. 412

Accumulated balance digital payment systems allow consumers to make instant online
payments to merchants and other individuals based stored value in a digital account.
Answer: False

18.

Difficulty: Medium

Sophisticated electronic commerce software has capabilities for processing credit card
purchases on the Web.
Answer: True

17.

Reference: p. 411

Although Internet-enabled cell phones are able to access the Web at anytime and from
anyplace, the amount of information that they can actually handle at one time is very limited.
Answer: True

16.

Difficulty: Hard

Many third-party Net marketplaces provide vertical markets for a single industry.
Answer: True

15.

Reference: p. 410

Automobile manufacturing is an example of a vertical market.

Answer: True

14.

Difficulty: Easy

Direct goods are not directly involved in the production process.

Answer: False

13.

Reference: p. 407

One use of EDI is Web personalization.

Answer: False

12.

Difficulty: Easy

Difficulty: Medium

Reference: p. 417

Peer-to-peer payment systems are the principal payment systems for electronic commerce.
Answer: False

Difficulty: Hard

160

Reference: p. 417

Multiple-Choice Questions
21.

One of the recent critical challenges facing Major League Baseball was:
a.
b.
c.
d.

poor coordination between local and national sales channels.

poorly managed sales channels.
outdated information systems.
decreasing ticket sales.

Answer: d

22.

Created a strategic advantage for major league baseball

Increased the efficiency of baseball operations
Strengthened the relationship with customers and suppliers
Made it possible for major league baseball to survive

Answer: c

Reference pp 389390

Online advertising sales

Internet portals
Online book sales
Internet service providers

Answer:

Difficulty: Hard

Reference: p. 392

Since the dot-com bubble burst of 2001, e-commerce revenues:

a.
b.
c.
d.

have essentially stagnated.

show signs of stabilizing.
have returned to solid growth.
have returned to exponential growth.

Answer:
25.

Difficulty: Hard

Through what channel did e-commerce first evolve?

a.
b.
c.
d.

24.

Reference p. 389

What was the most important impact of Major League Baseballs Web site
development efforts?

a.
b.
c.
d.

23.

Difficulty: Medium

Difficulty: Medium

Reference: p. 392

Which of the following is not a recent development in e-commerce?

a.
b.
c.
d.

Growth of wireless Internet connections

Online, interactive models for newspapers and other traditional media
Use of blogs as a commercial medium
Exponential growth of e-commerce retail sales

Answer:

Difficulty: Hard

161

Reference: p. 392393

26.

Which new development is helping expand B2B e-commerce opportunities?

a.
b.
c.
d.

Podcasting
Blogs
.NET and Web services
Dropping of computing and networking component prices

Answer:
27.

Difficulty: Hard

Reference: p. 393

Based on your reading of the chapters, e-commerce is:

a. still in its beginning phases.
b. widely accepted by consumers, although technology is still quickly changing.
c. not yet fully accepted by consumers, although much of its driving technology is firmly in
place.
d. well entrenched as a form of modern commerce.
Answer:

28.

Reference: p. 393

Information density
Information asymmetry
Richness
Interactivity

Answer:

Difficulty: Medium

Reference: p. 394

The quality of ubiquity, as it relates to e-commerce, is illustrated by:

a.
b.
c.
d.

the same set of standards being used across the globe.

plentiful, cheap information.
the enabling of commerce worldwide.
the availability of Internet technology everywhere and anytime.

Answer:
30.

Difficulty: Medium

Which of the following is not one of the unique features of e-commerce technology?
a.
b.
c.
d.

29.

Difficulty: Medium

Reference: p. 394

The lowered costs of information storage, processing, and communication, along with the
improvement of data quality has resulted in which unique quality of e-commerce?
a.
b.
c.
d.

Information density
Richness
Customization
Interactivity

Answer:

Difficulty: Medium

162

Reference: p. 394

31.

A marketplace extended beyond traditional boundaries and removed from a temporal and
geographic location is called a(n):
a.
b.
c.
d.

virtual community.
marketspace.
online marketplace.
e-hub.

Answer:
32.

Difficulty: Medium

Reference: p. 395

Information density refers to:

a.
b.
c.
d.

the complexity and content of a message.

the total amount and quantity of information delivered to consumers by merchants.
the total amount and quantity of information available to all market participants.
the amount of information available to reduce price transparency.

Answer:

Difficulty: Easy

Reference: p. 395

Selling the same goods to different targeted groups at different prices is called:
a.
b.
c.
d.

price customization.
price opacity.
price gouging.
price discrimination.

Answer:
35.

Reference: p. 394

price discrimination.
search costs.
menu costs.
transparency costs.

Answer:

34.

Difficulty: Medium

The effort required to locate a suitable product is called:

a.
b.
c.
d.

33.

Difficulty: Easy

Reference: p. 396

Information __________________ exists when one party in a transaction has more

information that is important for the transaction than the other party.
a.
b.
c.
d.

transparency
asymmetry
symmetry
imbalance

Answer:

Difficulty: Easy

163

Reference: p. 396

36.

The cost to a merchant of changing the price of a product is called a:

a.
b.
c.
d.

pricing cost.
dynamic pricing cost.
menu cost.
switching cost.

Answer:
37.

Difficulty: Easy

Reference: p. 397

Reducing the business process layers in a distribution channel is called:

a.
b.
c.
d.

disintermediation.
BPR.
market segmentation.
network effects.

Answer:

Difficulty: Easy

Reference: p. 397

Compared to digital markets, traditional markets:

a.
b.
c.
d.

have lower search costs.

have higher marketing costs.
have higher delayed gratification effects.
have higher transaction costs.

Answer:
40.

Reference: p. 397

menu pricing.
supply pricing.
dynamic pricing.
asymmetrical pricing.

Answer:

39.

Difficulty: Easy

Varying a products price according to the supply situation of the seller is called:
a.
b.
c.
d.

38.

Difficulty: Hard

Reference: p. 398

Digital goods are goods that:

a.
b.
c.
d.

are produced digitally.

are sold over digital networks.
are delivered digitally.
all of the above.

Answer:

Difficulty: Medium

164

Reference: p. 398

41.

Compared to traditional goods, digital goods:

a.
b.
c.
d.

have higher marketing costs.

have lower production costs.
have greater pricing flexibility.
have higher inventory costs.

Answer:
42.

Difficulty: Medium

Reference: p. 399

Which of the following businesses utilizes the content provider Internet business model?
a.
b.
c.
d.

Amazon.com
eBay.com
CNN.com
Motocross.com

Answer:

Difficulty: Medium

Reference: p. 399

Which of the following is an ad that opens automatically and does not disappear until the
user clicks on it?
a.
b.
c.
d.

Banner ad
Controlled ad
Portal ad
Pop-up ad

Answer:
45.

Reference: p. 399

Information broker
Transaction broker
Online service provider
Virtual storefront

Answer:

44.

Difficulty: Medium

Which of the following Internet business models does Amazon.com use?

a.
b.
c.
d.

43.

Difficulty: Medium

Reference: p. 400

Internet content providers:

a.
b.
c.
d.

generate from directing buyers to sellers.

save users money and time by processing online sales dealings.
provide a digital environment where buyers and sellers can establish prices for products.
create revenue by providing digital content over the Web.

Answer:

Difficulty: Easy

165

Reference: p. 399

46.

Transaction brokers:
a.
b.
c.
d.

generate revenue from advertising or from directing buyers to sellers.

save users money and time by processing online sales dealings.
provide a digital environment where buyers and sellers can establish prices for products.
sell physical products directly to consumers or individual businesses.

Answer:
47.

Difficulty: Easy

Reference: p. 399

Which of the five moral dimensions does the Interactive Session on MySpace.com raise?
a.
b.
c.
d.

Information rights and obligations

Quality of life
System quality
Property rights and obligations

Answer:

Difficulty: Hard

Reference: p. 402

A supersite that provides a comprehensive entry point for a huge array of Internet
resources and services is called a(n):
a.
b.
c.
d.

portal.
online syndicator.
content provider.
information broker.

Answer:
50.

Reference: p. 399

save users money and time by processing online sales dealings.

provide a digital environment where buyers and sellers can establish prices for products.
create revenue by providing digital content over the Web.
sell physical products directly to consumers or individual businesses.

Answer:

49.

Difficulty: Easy

Online marketplaces:
a.
b.
c.
d.

48.

Difficulty: Medium

Reference: p. 403

Pure-play business models:

a.
b.
c.
d.

are primarily used in business-to-business electronic commerce.

do not sell a physical product.
are extensions of traditional bricks-and-mortar businesses.
did not have an earlier existing bricks-and-mortar business before they went to the
Internet.

Answer:

Difficulty: Easy

166

Reference: p. 404

51.

eBay is an example of:

a.
b.
c.
d.

a click-and-mortar business.
C2C electronic commerce.
B2C electronic commerce.
an online exchange.

Answer:
52.

Difficulty: Easy

Reference: p. 404

Consumers selling goods and services electronically to other consumers best describes:
a.
b.
c.
d.

disintermediation.
C2C electronic commerce.
M-commerce.
B2C electronic commerce.

Answer:

Difficulty: Easy

Reference: p. 404

The presentation of Web pages tailored to a customer, based on the gathering of demographic
information provided by the customer, is called:
a.
b.
c.
d.

interactive marketing.
personalization.
collaborative filtering.
localization.

Answer:
55.

Reference: p. 404

B2B electronic commerce.

C2C electronic commerce.
M-commerce.
B2C electronic commerce.

Answer:

54.

Difficulty: Easy

Businesses retailing products and services directly via the Internet to individual consumers
best describes:
a.
b.
c.
d.

53.

Difficulty: Medium

Reference: p. 406

Tools that record customer activities at Web sites and store them in a log for further analysis
are called:
a.
b.
c.
d.

clickstream tracking tools.

customer tracking tools.
collaborative filtering tools.
filtering tools.

Answer:

Difficulty: Easy

167

Reference: p. 405

56.

Tools that compare user behavior and interests to make purchasing recommendations to users
are called:
a.
b.
c.
d.

clickstream tracking tools.

customer tracking tools.
collaborative filtering tools.
filtering tools.

Answer:
57.

Difficulty: Hard

Reference: p. 408

What strategy was implemented by Stonyfield Farms use of blogs?

a.
b.
c.
d.

Low-cost leadership
Product differentiation
Focus on market niche
Strengthen customer and supplier intimacy

Answer:

Difficulty: Hard

Reference: p. 408

The organizational department responsible for handling customer service issues is the:
a.
b.
c.
d.

service center.
customer support.
call center.
sales department.`1

Answer:
60.

Reference: p. 406

Low-cost leadership
Product differentiation
Focus on market niche
Strengthen customer and supplier intimacy

Answer:

59.

Difficulty: Easy

From your reading of the text, which general strategy to overcome market forces is an
overarching focus for Stonyfield Farm?
a.
b.
c.
d.

58.

Difficulty: Medium

Reference: p. 409

EDI is:
a.
b.
c.
d.

the use of Internet technologies for electronic data transactions.

the exchange between two organizations of standard transactions through a network.
electronic data invoicing.
electronic delivery infrastructure.

Answer:

Difficulty: Medium

168

Reference: p. 410

61.

The process of sourcing goods and materials, negotiating with suppliers, paying for goods,
and making delivery arrangements is called:
a.
b.
c.
d.

procurement.
e-procurement.
supply chain management.
electronic commerce.

Answer:
62.

Reference: p. 410

private industrial network.

e-hub.
marketspace.
exchange.

Answer:

Difficulty: Easy

Reference: p. 411

______________________ are more transaction oriented than private industrial networks.

a.
b.
c.
d.

Private exchanges
E-hubs
Extranets
All of the above

Answer:
64.

Difficulty: Easy

An extranet that links a large firm to its suppliers and other key business partners is called
a(n):
a.
b.
c.
d.

63.

Difficulty: Hard

Reference: p. 411

Net marketplaces:
a. focus on continuous business process coordination between companies for supply chain
management.
b. operate as independent intermediaries between buyers and sellers.
c. are geared towards short-term spot purchasing.
d. are more relationship oriented and less transaction oriented than private industrial
networks.
Answer:

65.

Difficulty: Medium

Reference: p. 411

A third-party Net marketplace that connects many buyers and suppliers for spot purchasing is
called a(n):
a.
b.
c.
d.

exchange.
vertical market.
private exchange.
e-hub.

Answer:

Difficulty: Medium

169

Reference: p. 412

66.

Which type of application takes special advantage of the unique capabilities of mobile
technology?
a.
b.
c.
d.

Text-based messaging
Personalized services
Location-based applications
Interactive, video-rich applications

Answer:
67.

Difficulty: Medium

Reference: p. 416

The electronic payment system that uses a credit card-size plastic card that stores digital
information and that can be used for electronic payments in place of cash is called:
a.
b.
c.
d.

digital cash.
e-cash.
digital wallet.
smart card.

Answer:

Difficulty: Easy

Reference: p. 416

Based on your reading of the case study text, which of the four generic strategies to deal with
competitive forces was the motivating factor behind eBays acquisition of JotSpot and
Kaboodle?
a.

Low-cost leadership

b.
c.
d.

Product differentiation
Focus on market niche
Strengthen customer and supplier intimacy

Answer:
70.

Reference: p. 413

smart card
accumulated balance digital
stored value
digital cash

Answer:

69.

Difficulty: Medium

The electronic payment system in which users make micropayments and purchases on the
Web, accumulating a debit balance on their credit card or telephone bill is called a(n)
_______ payment system.
a.
b.
c.
d.

68.

Difficulty: Hard

Reference: p. 426

Based on your reading of the text, how do wireless marketing strategies differ from
traditional Internet marketing strategies?
a.
b.
c.
d.

Focus is on bringing message related to the customers point of need or locale.

Content-rich messaging
Greater personalization
Pushing Web sites to customers

Answer:

Difficulty: Medium

170

Reference: p. 413415

Fill In the Blanks

71.

Menu costs are the merchants costs of changing prices.

Difficulty: Hard

72.

A(n) virtual storefront sells physical products directly to consumers or individual businesses.
Difficulty: Medium

73.

Reference: p. 416

Peer-to-peer payment systems allow people to send money to vendors or individuals who are
not set up to accept credit card payments.
Difficulty: Medium

80.

Reference: p. 416

Stored value payment systems enable a consumer to make instant online payments to
merchants and other individuals based on value stored in the digital account.
Difficulty: Medium

79.

Reference: p. 416

A(n) micropayment is a payment for a very small sum of money, often less than $10.
Difficulty: Medium

78.

Reference: p. 412

A(n) digital wallet stores credit card and owner identification information and provides these
data automatically during electronic commerce purchase transactions.
Difficulty: Medium

77.

Reference: p. 399

Exchanges are a third-party Net marketplace primarily transaction oriented and that connect
many buyers and suppliers for spot purchasing.
Difficulty: Medium

76.

Reference: p. 399

A(n) portal provides the initial point of entry to the Web along with specialized content and
other services.
Difficulty: Easy

75.

Reference: p. 399

A(n) virtual community provides an online meeting place where people with similar interests
can communicate and find useful information.
Difficulty: Medium

74.

Reference: p. 397

Reference: p. 417

A(n) digital checking system extends the functionality of existing checking accounts so they
can be used for online shopping payments.
Difficulty: Medium

Reference: p. 417

171

Essay Questions
81.

Describe how e-commerce affects careers in the four major business functions. Which
function do you think is most affected currently?

If your career is in finance and accounting, you will be working with systems for
receiving payments electronically over the Internet and for delivering new online
financial services based on the Web.
If your career is in human resources, you will be using online job-hunting sites to attract
new employees.
If your career is in manufacturing, production or operations management, you will be
using the Internet for sourcing, and using public B2B commerce systems and private
industrial networks for procurement and management of your supply chain.
If your career is in sales and marketing, you will be using the Web to provide digital
products and services, and to sell and promote products by using personalization,
customization, and community marketing techniques.

I think the function most affected currently by e-commerce is manufacturing and production,
as a companys supply chain can affect 75% of its total operating budget. The efficiency and
better decision making afforded by e-commerce can make significant changes in a
companys supply chain and, therefore, profits.
Difficulty: Hard
82.

Reference:

p. 391

"Knowledge increases exponentially," is a phrase with which we are all familiar. How
does this concept apply to electronic business and the emergence of the digital firm?
Support your contentions.
Student answers will vary: One answer might be:
The exponential increases of knowledge refer to shared information. For example, once the
concept of a wheel is established, inheritors of that knowledge do not have to reinvent the
wheel. The Internet is a tool similar to the wheel: it is based on shared standards and
universal tools. The Internet and shared networking technologies are allowing new
techniques for attracting customers and selling customers to be developed and adapted very
quickly. For example, although early Internet retailers had difficulty setting up secure credit
card transactions and payment systems, today there are many systems in place as vendors
step in to create shared tools for doing this. The Internet is fostering shared knowledge and as
such propagating ever greater increases in that knowledge.
Difficulty: Hard

Reference:

172

p. 391418

83.

What are transaction costs? List and describe at least four ways that the Internet can
reduce transaction costs.
Transaction costs are the costs in participating in a market and purchasing goods and services
that a business cannot make itself. Because of its speed and the availability of information,
the Internet makes it possible to reduce the time expenditure in such transactions as
answering the customer questions, trading shares of stock, correcting an employee record,
processing customer orders, making advertising information available, or paying a bill.
Because time and effort is reduced, transaction costs are reduced.
Difficulty: Hard

84.

Reference:

p. 394

List and describe at least five different Internet business models. Which of these models
do you think is the most risky for a dot-com business? Support your answer.
The eight models are: virtual storefront, information broker, transaction broker, online
marketplace, content provider, online service provider, virtual community, and portal. The
choice of riskiest model will depend on the individual student.
Difficulty: Medium

85.

Reference:

p. 399

Using Web personalization technology, companies are moving into customer-centered

retailing. Discuss this concept, defining relevant terms.
Web personalization is the art of gathering enough information about visitors to your Web
site that you can present that site to returning visitors, hopefully new customers, by name and
by interest area.
Customer-centered retailing allows a company to tailor products individually to many
customers at the same time. In Internet terms, this is referred to as mass customization. In
the past, because it could not know each of its customers individually, a company had to
create a product aimed at a broad variety of needs and hope that the needs of enough
customers could be met with that product to create a profit. Customers, on the other hand,
had to choose among products that already existed, or pay an increased price for a product
tailored individually to them.
The Internet, by making it possible for companies and their customers to interact
individually, has changed this equation. Companies can now use the capacities of the Internet
to provide ongoing information, service, and support to individuals, which will create
positive interactions with customers that can serve as the foundations for long-term
relationships and repeat purchases.
Difficulty: Hard

86.

Reference:

p. 405406

List and describe at least three ways in which the individual consumer may pay for
purchases on the Internet.
The principal electronic payment systems for electronic commerce for the individual are
credit card, digital wallet, accumulated balance digital payment systems, stored value
systems, digital cash, peer-to-peer payment systems, and electronic checks. Most consumers
use their credit card.
Difficulty: Medium

Reference:

173

p. 416417

87.

List and describe the three major types of electronic commerce. Which do you think is
ultimately the most valuable to the individual consumer? Support your answer.
Business-to-consumer, business-to-business, and consumer-to-consumer. All three are
valuable to the consumer, but in the long run, business-to-business may be the most valuable
to the individual consumer because it will reduce prices and increase both goods and
services. (Other opinions, of course, are supportable.)
Difficulty: Medium

88.

Reference:

p. 404412

What methods could a portal use to generate revenue? Which do you think might be
most successful, and why?
Advertising, subscriptions, selling collected marketing information, and directing buyers to
sellers could all generate revenue. I would think the most successful method would be
through collecting marketing information, because as a portal that links to large amounts of
external information and attracts repeat customers, the portal would have the opportunity to
gather a lot of information about each user.
Difficulty: Medium

89.

Reference:

p. 399406

You are consulting for Luckys, a chain of gas stations. What types of e-commerce
opportunities, if any, are relevant to Luckys? Could Luckys make use of any Internet
business models for this opportunity?
In terms of B2B e-commerce, Luckys might be able to procure goods over the Internet, use a
private industrial network to coordinate their supply chain with suppliers and manage
inventory. Depending on the structure of the gasoline retail business, industry net
marketplaces and exchanges might be of use.
In terms of B2C e-commerce, there are not many opportunities, as it is inefficient to sell
gasoline over the Internet. However, a mobile payment system, similar to Mobils SpeedPass
payment system, is a way of offering more convenient services to customers. Additionally,
Luckys could make sure that its stations are listed in popular location-based mobile services
that help drivers find nearby gas stations.
Difficulty: Hard

90.

Reference:

p. 404418

You have been hired as a marketing consultant by a law firm in Los Angeles that
specializes in juvenile justice. What ways can you use the Internet as a marketing tool
and to advertise the firms services?
For market research, you could advertise on search engines. You could pay for marketing
research at relevant portals. You could also collect customer information from the companys
Web site. You could monitor relevant blogs to see what issues are of concern in juvenile
justice, so as to address these concerns in your advertising campaigns.
To advertise, you could advertise on search engine results and at relevant portals or legal
information content providers, using banner ad or popup ads. If it were feasible, you could
create a juvenile justice portal and blog for the company in order to attract users whom you
could gather market research as well as promote your services.
Difficulty: Hard

Reference:

174

p. 405409