The Construction of Electronic Markets

Ian Graham

PhD
The University of Edinburgh
1999

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ABSTRACT

The scope of this study is the development of electronic market systems in agricultural products and fish.
These systems allow buyers to bid remotely in auctions without attending, based on descriptions of the
lots. The study uses a social network approach to uncover the processes by which groups of sellers,
buyers, existing intermediaries and technical experts build the electronic market systems and then use
them. The research was based upon a survey of literature describing electronic market systems and
empirical studies of the developers and users of electronic market systems in the United Kingdom, Iceland,
Australia, Canada and the United States of America.

From these studies, patterns shaping the development of electronic markets are identified. The hard
technology of hardware and software is shown to be unproblematic relative to the social barriers of gaining
acceptance within a trading community. The first social barrier faced in the transition from live to remote
markets is the specification of a system for describing the lots for sale. While the justifications for
electronic markets stressed the opportunity to restructure agricultural supply, introduce improved price
discovery mechanisms and create markets covering larger areas than live markets, the history of electronic
markets shows that markets building upon existing social structures are more successful. By enrolling
existing intermediaries and simulating the practices of the live market they are able to exploit the trust and
expertise embedded in existing social relationships.

The case studies lead to a questioning of the dominant view of electronic commerce - that the technical
feasibility of trading electronically and its apparent efficiency advantages over conventional trade make its
introduction inevitable. Instead, the limited success of electronic markets in agricultural products suggest
that the barriers to the formation of electronic markets are greater than an economic analysis would
suggest and that the social impacts of electronic markets are less extensive than expected.

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The Construction of Electronic Markets

THE CONSTRUCTION OF ELECTRONIC MARKETS ........................................................................1

ABSTRACT ................................................................................................................................................2
THE CONSTRUCTION OF ELECTRONIC MARKETS ..........................................................................................3
TABLES......................................................................................................................................................6
1. INTRODUCTION ....................................................................................................................................7
INTRODUCTION.............................................................................................................................................8
THE INFORMATION SOCIETY AND ELECTRONIC COMMERCE ........................................................................8
ELECTRONIC MARKETS ................................................................................................................................9
ELECTRONIC AUCTIONS IN AGRICULTURAL MARKETS ...............................................................................12
RESEARCH BACKGROUND ..........................................................................................................................13
INTERVIEWS ...............................................................................................................................................15
CHAPTER OVERVIEW/SYNOPSIS .................................................................................................................18
2. SOCIAL ANALYSIS OF NETWORK TECHNOLOGY ...................................................................20
INTRODUCTION...........................................................................................................................................21
ANALYSIS OF THE EMERGENCE OF ELECTRONIC MARKETS ........................................................................21
Technological Determinism...................................................................................................................21
Social Studies of Technology.................................................................................................................22
A SOCIAL NETWORK METHODOLOGY ........................................................................................................36
3. THE CONTEXT FOR THE EMERGENCE OF ELECTRONIC MARKETS ................................38
INTRODUCTION...........................................................................................................................................39
CONCEPTUALISATION OF MARKETS............................................................................................................39
Markets as Anonymous Fora.................................................................................................................39
Markets as Social Institutions ...............................................................................................................41
Markets as Social Networks ..................................................................................................................42
THE EVOLUTION OF AGRICULTURAL MARKETS..........................................................................................43
Auctions.................................................................................................................................................45
Direct Selling.........................................................................................................................................49
Electronic Markets ................................................................................................................................52
THE PRESSURE FOR ELECTRONIC MARKETS...............................................................................................56
4. NORTH AMERICAN ELECTRONIC MARKETS ..........................................................................57
INTRODUCTION...........................................................................................................................................58
TELETYPE AUCTIONS IN NORTH AMERICA .................................................................................................58
TELCOT ......................................................................................................................................................59
THE BACKGROUND TO ELECTRONIC LIVESTOCK MARKETING SYSTEMS IN NORTH AMERICA ....................61
MEAT GRADING IN THE UNITED STATES ....................................................................................................64
USDA PILOTS ............................................................................................................................................64
EGG CLEARING HOUSE (ECI).....................................................................................................................64
HAMS ....................................................................................................................................................65
CATS .....................................................................................................................................................67
CATTLEX ..............................................................................................................................................68
Electronic Marketing Association .........................................................................................................70
Technology ............................................................................................................................................72
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 Operation of NEMA...............................................................................................................................72
Lambs ....................................................................................................................................................73
Change in the Ownership of NEMA ......................................................................................................75
COMPARISON OF ELECTRONIC SYSTEMS IN UNITED STATES ......................................................................75
SATELLITE SELLING ....................................................................................................................................78
CANADIAN ELECTRONIC AUCTIONS ...........................................................................................................81
NEMI II .................................................................................................................................................85
EQUITY.................................................................................................................................................87
BUILDING THE NORTH AMERICAN ELECTRONIC MARKETS ........................................................................91
5. AUSTRALIAN ELECTRONIC MARKETS .......................................................................................93
INTRODUCTION...........................................................................................................................................94
EARLY REMOTE MARKETS IN AUSTRALIA ..................................................................................................94
The Establishment of CALM................................................................................................................100
The Operation of CALM......................................................................................................................101
Technical Aspects of CALM ................................................................................................................104
CALM Beyond Livestock .....................................................................................................................107
CALM Beyond Australia .....................................................................................................................107
Privatisation of CALM ........................................................................................................................108
BUILDING THE CALM NETWORK .............................................................................................................109
6. BRITISH ELECTRONIC LIVESTOCK MARKETS ......................................................................111
INTRODUCTION.........................................................................................................................................112
BACKGROUND TO THE EMERGENCE OF ELECTRONIC MARKETS ...............................................................112
EARLY BRITISH REMOTE BIDDING LIVESTOCK AUCTIONS .......................................................................114
EASE.......................................................................................................................................................118
Building the EASE Network ................................................................................................................119
Technology ..........................................................................................................................................122
Grading ...............................................................................................................................................123
EASE in Use ........................................................................................................................................125
Marketing ............................................................................................................................................126
Other Products ....................................................................................................................................128
BEACON ................................................................................................................................................130
Other Products ....................................................................................................................................133
LEAN ......................................................................................................................................................134
Other Products ....................................................................................................................................137
APEX ......................................................................................................................................................137
Operation of NEMI/APEX System in South Africa..............................................................................143
DIRECT ..................................................................................................................................................145
CLASS.....................................................................................................................................................147
USERS’ PERSPECTIVES .............................................................................................................................150
RELATIVE SUCCESS OF UNITED KINGDOM LIVESTOCK SYSTEMS .............................................................155
DEMISE OF CLASS...................................................................................................................................161
DEFECTION OF ASSESSORS .......................................................................................................................165
COLLAPSE OF APEX LTD .........................................................................................................................166
FURTHER DEVELOPMENTS BY NEWLINE ..................................................................................................167
BUILDING THE UNITED KINGDOM ELECTRONIC LIVESTOCK AUCTIONS NETWORKS .................................168
FAILURE TO STABILISE THE NETWORKS ...................................................................................................171
7. FISH MARKETS .................................................................................................................................174
INTRODUCTION.........................................................................................................................................175

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 CONTINENTAL MARKETS FOR AGRICULTURAL PRODUCE .........................................................................176
SCHELFHOUT COMPUTER SYSTEMS (SCS) ...............................................................................................177
Technical Background to SCS Systems ...............................................................................................181
Markets for Fish ..................................................................................................................................182
Building the Continental Market Networks .........................................................................................183
HIGHLAND HARBOURS .............................................................................................................................184
Network Building in Highland Fish Markets ......................................................................................197
ICELAND...................................................................................................................................................198
Tengill .................................................................................................................................................199
BODI ...................................................................................................................................................200
Failed Merger of Tengill and BODI....................................................................................................202
CASS in Massachusetts .......................................................................................................................202
Building the Icelandic Fish Market Networks .....................................................................................203
PAN-EUROPEAN FISH MARKETS ...............................................................................................................203
INFOMAR ...........................................................................................................................................203
Pan-European Fish Auction (PEFA)...................................................................................................205
Building the Pan-European Markets...................................................................................................206
BUILDING THE FISH MARKET NETWORKS.................................................................................................206
8. BUILDING ELECTRONIC AUCTIONS ..........................................................................................208
INTRODUCTION.........................................................................................................................................209
CONCEPTION ............................................................................................................................................209
Initiation..............................................................................................................................................210
Enrolling of Financial Resources........................................................................................................213
Technology ..........................................................................................................................................216
Classification.......................................................................................................................................221
ADOPTION ................................................................................................................................................231
Parallel................................................................................................................................................231
Evolutionary ........................................................................................................................................231
Enrolling Intermediaries .....................................................................................................................232
Enrolling Buyers .................................................................................................................................234
Systems In Other Markets....................................................................................................................235
Stasis in System Development .............................................................................................................236
DISSOLUTION............................................................................................................................................237
THE FAILURE OF PROGRESS THROUGH INFORMATION TECHNOLOGY.......................................................241
EVOLUTION OF ELECTRONIC MARKETS ....................................................................................................242
9. CONCLUSION: THE CONSTRUCTION A NETWORK TECHNOLOGY ..................................245
THE SOCIAL ANALYSIS OF ELECTRONIC COMMERCE ...............................................................................246
The Rhetorical Status of Discourse .....................................................................................................246
The Failure of Economic Analysis ......................................................................................................246
The Interaction of Information Technology and Agricultural Economics Discourses........................247
Electronic Markets: A Socially Shaped Technology? .........................................................................248
The Archaeology of Social Networks ..................................................................................................249
THE USE OF ANT FOR ANALYSING NETWORK INNOVATIONS ...................................................................250
10. BIBLIOGRAPHY ...............................................................................................................................253

FIGURES
Figure 1: Structure of United Kingdom Meat Supply Chain in Early 20th Century ....................................48
Figure 2: Genealogy of EMA-related Auction Systems ............................................................................220

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TABLES
Table 1: Products Sold Under Contract 1990 (%).......................................................................................50
Table 2: Electronic Agricultural Commodity Markets in United States ......................................................76
Table 3: Advantages by Producers of Using NELCM.................................................................................97
Table 4: Forms of Stock Assessment Acceptable to Buyers........................................................................98
Table 5: Livestock sales through CALM...................................................................................................105
Table 6: EASE Franchisees .......................................................................................................................122
Table 7: Electronic Finished Cattle Sales..................................................................................................155
Table 8: Electronic Finished Sheep Sales..................................................................................................156
Table 9: System used by farmers who had sold electronically ..................................................................160
Table 10: Drawbacks of Electronic Selling Cited By Farmers ..................................................................160
Table 11: Benefits of Electronic Selling Cited by Farmers .......................................................................160
Table 12: Reasons Given by Farmers for Not Using Electronic Auctions ................................................161
Table 13: Volumes traded on TENGILL in Iceland. .................................................................................200
Table 14: Electronic Cattle Sales ..............................................................................................................238
Table 15: Electronic Sheep Sales ..............................................................................................................238