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6 July, 10:37

How have companies such as ebay (and the internet more generally) lowers transaction costs? economics?

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  1. 6 July, 10:57
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    1. Absence of Rent

    2. No Salesperson's salary

    3. Absence of Utility Bills

    4. No inventory Holding Costs

    5. Average Cost Per Unit

    Explanation:

    Companies such as ebay (and the internet more generally) lowers transaction costs because of the following:

    1. Absence of Rent: Companies such as ebay (and the internet more generally) lowers transaction costs because they do not pay store rent which is a significant business cost for offline businesses that operate in brick and mortar stores.

    2. No Salesperson's salary: Online companies like ebay do not pay salesperson's salaries and by so doing they reduce transaction costs

    3. Absence of Utility Bills: Online businesses like ebay do not pay utility billslike lighting costs and water rates etc, and this is another way of transaction cost reduction

    4. No inventory Holding Costs: Online businesses do not incur transaction holding costs as they keep no warehouses for their inventory.

    5. Average Cost Per Unit: In an internet business, you are bound to make profit even for one unit because you don't have to sell a number of units to cover for monthly fixed costs before you make profit. Transaction cost is same whether for one or a thousand units.

    These are some of the ways online businesses have reduced costs.
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