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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.

Working papers

Economic Reform and Constitutional Transition, by Jeffrey Sachs, Wing Thye Woo, and Xiaokai Yang

Endogenous Transaction Cost and Division of Labor, by Xiaokai Yang and Yiming Zhao

Trade Pattern and Economic Development when Endogenous and Exogenous Comparative Advantages Coexist, by Jeffrey Sachs, Xiaokai Yang, Dingsheng Zhang

Incomplete Contingent Labor Contract, Asymmetric Residual Rights and Authority, and the Theory of the the Firm, by Xiaokai Yang

The Crisis of Success and Feedback Quality in Managing Economic Crisis, by Xiaokai Yang

in the Model of Monopolistic Competition by Jeffrey Sachs, Xiaokai Yang, Dingsheng Zhang

Irrelevance of Inequality in Income to Economic Development, by Xiaokai Yang and Dingsheng Zhang

PhD Dissertations

PhD Dissertations

Meng-Chun Liu: Two approaches to trade and import protection (Chapters 0, 1, 2, 3, 4, 5)

Yongshen Zhang: Irrelevance of the Size of the Firm: Theory and Evidence (Chapter 0, 1, 2, 3, 4, 5, 6, 7,

Dingshen Zhang: Economic Development, Trade Pattern and Income Distribution (dissertation)

Inframarginal economics

Inframarginal economics is to apply inframarginal analysis to studies of network effects of division of labor and various economic problems associated with different features of the network pattern of division of labor. To understand what is inframarginal analysis and the framework that distinguishes inframarginal economics from marginal economics and neoclassical economics that sometime also applies inframarginal analysis, we have to look at the difference between the core of classical mainstream economics and neoclassical economics.

The core of classical mainstream economics represented by William Petty and Adam Smith differed from neoclassical economics in two aspects. It focused on network effects of division of labor and it emphasized the role of the market (the invisible hand) in exploiting the network effects to reduce scarcity. As shown in Yang and Ng (Specialization and Organization, 1993) and Yang (Economics: New Classical Versus Neoclassical Frameworks, 2001), inframarginal analysis of individuals’ networking decisions is essential for formalizing the classical development economics. Here inframarginal analysis is the total cost-benefit analysis across corner solutions in addition to the marginal analysis of each corner solution. If the optimum value of a decision variable takes on its upper or lower bound, the optimal decision is a corner solution. Formally, it relates to nonlinear programming, mixed integer programming, dynamic programming, the control theory, and other nonclassical mathematical programming.

By Xiaokai Yang, September, 2001