The e-commerce marketing buzzmasters have coined yet another phrase to describe the emerging business-to-business (B2B) e-marketplace phenomenon: collaborative commerce. Various industry giants, application service providers (ASPs), and software vendors are hyping the benefits of these alliances to unify the supply chain to gain further economies of scale. The collaborative aspect of the solution is the real-time sharing of information throughout the supply chain, using Internet-based tools.

E-marketplace Promises

The promises of improved economies of scale and of reduced supply-chain problems, lower costs, and greater efficiencies are compelling. In theory, if all members of the supply chain were linked in real time through the same software systems, many supply-chain problems that require human resolution could be automatically addressed using rules-based systems. The members could capture their respective markets by outperforming less integrated, less efficient competitors.

The Race Is On

Many e-business-savvy industries are falling under the marketplace/collaborative commerce spell. Many of the Fortune 1000 are scrambling to either create or join marketplaces. Examples include MetalSite, L.P. (steel), Covisint (Daimler/Chrysler, Ford Motor Company, General Motors Corporation, and Renault/Nissan), T2 (an exchange formed by Continental, United, Delta, Northwest, and American airlines). There are now over 600 B2B marketplaces, with many new ones announced each month.

Industry analysts are projecting that marketplaces will result in competition between supply chains and that businesses that don't join in will simply fail. Recent industry studies have suggested that 35 percent of all B2B trade will be conducted through e-marketplaces by 2005.

Enter the FTC

B2B marketplaces can also pose substantial antitrust concerns. The Federal Trade Commission (FTC) has been studying B2B marketplaces to determine their effects on competition. In April 2000, the FTC issued Antitrust Guidelines for Collaborations Among Competitors, and in June it undertook a two-day workshop entitled Competition Policy in

the World of B2B Electronic Marketplaces. The goal of the workshop was to educate the FTC about the ways in which e-marketplaces are being used, as a framework for antitrust analysis and to solicit industry opinion about regulatory issues.

The FTC has also undertaken investigations of the Covisint exchange, and the Department of Justice is considering investigations of other marketplaces. Each of these proposed exchanges would consolidate more than 20 percent of their markets.

Antitrust Issues

A primary antitrust concern is the development of monopsony power within small alliances of purchasers, which could depress supplier prices and supplier output to below the levels normally achieved by market competition. This can happen when purchases for both indirect materials (e.g., those used for business maintenance, repair, and operation) and direct materials are consolidated. Antitrust concerns arise when purchases of specialized products for large companies are aggregated.

Central to the price fixing and collusion claims is the degree to which partners share information within the exchange. Concern arises when competitors enter into price fixing agreements after gaining access to each other's data, or when prices become fixed as a result of a competitor knowing another's cost information.

As each participant enters a given marketplace, the value of the network to its existing members increases. Antitrust concerns arise when membership is denied to new members or when exclusivity constraints are placed on membership, such as precluding members from joining other marketplaces.

Lastly, any collaboration of former competitors raises traditional antitrust issues, including price signaling and fixing and collusive marketing agreements on price, market division, output, or other factors.

The Cry for Self-regulation

The public comments submitted to the FTC following the June workshop reveal a uniform request for self-regulation. The participants claim that the recently published guidelines, along with market forces, are sufficient for the existing marketplace environment.

Others claim that the conditions in the Internet marketplace change so rapidly that they become self-regulating or self-correcting.

However, many privately run marketplaces are already involving antitrust counsel in their daily operations to ensure that their practices are in compliance. Given the FTC's early investigation of B2B marketplaces, the complexity of antitrust law ,and the projected growth of marketplaces as a force in B2B ecommerce, the use of antitrust counsel will rapidly accelerate.

For example, as exchanges become independent entities, divorced of their founding companies, operating rules will have to be drafted that address the need to screen potential partners while complying with antitrust laws. Marketplaces will also need legal assistance in the preparation of employee training programs to prevent anticompetitive activity.

Stay Tuned

The B2B marketplace phenomenon is just beginning to take off. Midrange Computing will strive to keep you informed so that you can participate in this supply-chain revolution.