Ecommerce company pricing
From Inframarginal Versus Marginal Analysis of Networking Decisions and e-Commerce
Yew-Kwang Ng
The inframarginal analysis of impersonal networking decision can also be extended to explain the unusually high P/E ratio of many e-commerce companies. If positive network effects of e-commerce can be created by founding of many e-commerce companies, but services provided by these companies are not easy to directly price, then the merger of e-commerce companies and other companies which sell tangible goods can indirectly price intangible e-commerce services via implicit bundling in e-commerce. The story about bundling between automobiles and internet purchase services is an example. Other examples include the merger of the AOL and Warner Brothers, which bundles intangible services of the AOL with tangible goods provided by Warner Brothers, and Amazon.com which bundles intangible e-commerce with tangible hard copies of books. Hence, some e-commerce companies can have unusually high P/E ratio since the market expects that such companies may be merged or bought by other companies selling tangible goods at quite high share prices if they really create significant network effects of division of labour. This phenomenon is difficult to explain using marginal analysis in the existing literature of bundling and tying sale.
business, ecommerce, economics, inframarginal | admin | 
November 26, 2009 4:48 am
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