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Automation: Information

Objective: Explain how the advances in computation and communication are being used to automate the flow of paperwork in the political economy. Progress requires constant reorganization of people and technology. The index for this section is:

Overview

The second aspect of the production of goods and services is the handling of informational objects (paperwork). The automation of paperwork is facilitated by the transfer of activities from paper to electronics. For example, the shift of many aspects of market activities to the social nervous system will permit the automation of market transactions paperwork. Transferring paperwork from paper to electronics requires much more than simply transferring the activity to electronics. To be an innovation, that is, achieve better performance, with the new combination of hardware, software, and humans, the activity generally must be completely reorganized (reengineered) to achieve the potential efficiency. Moreover, the new technological combination offers possibilities for new services that were previously not economical. In automating paperwork, the advance of artificial intelligence defines the limit for substituting software for humans. Also, the growth of new information services provide new employment opportunities.

Transition to a paperless society

The initial application of microelectronics to paperwork led to an increase, not a decrease, in the amount of paper because the initial applications were to standalone equipment such as wordprocessors and laser printers. This technology increased the quality and reduced the cost of producing reports on paper and provided no mechanism for electronic communication. The reduction in paperwork requires the creation of communication networks and standards to automatically communicate messages.

 

When I wrote the first version of these notes in the late 1980s I assumed that the development of such communications networks would place sequentially in three stages of increasing difficulty:

1. First, equipment in an office has been connected into LANs.

2. Second, equipment in the various offices on a public or private institution is currently being connected into WANs.

3. Third, communication protocols are being established so that institutions can increasingly communicate electronically.

What is happening in the 90s is that with the development of the internet the last two stages are taking place simultaneously in the Internet through the WEB. Using the WEB is cheaper than creating private communications networks and the problems of world standards have already been solved.

 

Within a firm or public institution

Creating a LAN within a single office was the easiest step because the office could buy compatible equipment and network software. Also, it was relatively easy to install a broadband (high capacity) communications line within an office.

Today, local area networks, LANs, are widespread. To understand their gain in efficiency, let us review the technological advances in an office. The technological revolution of the 19th century was the typewriter. The creation, filing, and transmission of documents and letters on paper were labor intensive operations. The introduction of wordprocessors into the office increased the productivity of secretaries by a factor of four. However, as long as wordprocessors remained standalone devices, paper remained the primary media of communication. Technological advances such as laser printers primarily function to produce better paper copies. The volume of paperwork increased not decreased. It is only in the 90s with better communication that the volume of paperwork is starting to decline.

The move towards reducing paper depended on linking all office equipment into a LAN so that filing and communicating documents can be performed automatically by software. For example, this reduces the flow of paperwork throughout the office because messages and documents can be sent by E-mail. Today, some institutions such as USAA are moving to have all paperwork transferred to electronic memory when it enters the office. At USAA, worker at their workstations in their client-server networks can retrieve the complete file for any customer. The rapid growth of LANs is now just beginning to decrease the flow of paper, this assertion is reflected in the fact that the number of administrative support workers peaked several years ago at 19M workers.

Now let us consider an example of how technological innovations on paperwork processing reorganized the role of workers. Paperwork administration in offices prior to the computer was generally organized in paperwork assembly lines. Each person was responsible for a single box on a form. This approach was very inflexible and errors were hard to detect and, thus, correct. With the introduction of mainframes, the paperwork assembly line was entered into the mainframe as a batch job. A major technical advance was linking hundreds of terminals to the mainframe coupled with much better software. A single person using this software, which had prompts to aid the worker, could handle the entire flow of information for an administrative action. In services such as insurance, this enables customer representatives to handle all the needs of a customer using a software program. The customer representative was much more productive because (1) errors were reduced, (2) the customer related to one individual customer representative, and (3) the firm could offer all kinds of new services supported by software.

Moreover, technological innovations can reduce the firm's costs by transferring labor to the customer. For example, when phones were invented, a human operator made the connections. With the automatic exchange, however, the customer assumed this labor in dialing because it was faster and cheaper. Also, with bank ATMs the customer performs the labor formerly performed by the human teller. Finally, the customer can find and book the best flight using the airline reservation systems accessed through information utilities available through modems of personal computers. By making software more intelligent, the customer can assume much labor formerly supplied by sales representatives. In some markets, like real estate, the agents will resist the move because it will eliminate their monopoly profits. By assuming the labor costs, the customer can obtain a cheaper product. The time spent interacting with the program is no greater than the time spent interacting with the sales representative.

The technological frontier shifted to creating WANs to link all offices in a firm or public institution in the 80s. While an institution can purchase a compatible equipment and software to create a WAN, the technical problems are more difficult than creating a LAN. Among widely separated offices, the institution must either set up a satellite communication system or rent lines from a long distance carrier. Given the expense, a great deal of effort in creating WANs is in protocols and compression techniques to obtain the maximum communication flow through the channels among offices.

Corporations are purchasing WANs to communicate text, data and frequently images. Such networks change business decision making. Consider the supermarket. By installing optical scanners, supermarkets are creating an integrated information system linking market transactions with their internal operations. One factor leading to the installation of scanners is that scanners are more efficient in checkout. Scanners also provide opportunities for new innovations in business practice. For example, by reading the Universal Product Code, the computer is able to keep track of inventory and reorder. Controlling the inventory of retail stores via the sales terminal by computer means lower levels of inventory are required. This reduces costs and raises profits. In addition, the computer can compute the profitability of every square inch of shelf space. This new approach enables the seller to perform scientific analysis of his advertising budget. In pharmacies, the computer can cross-check drugs for potentially dangerous interactive effects. Corporatewide data networks make for much more detailed decision-making and faster response to changing conditions. Analysis of the new large databases is called data mining.

The creation of WANs for corporations is causing major hierarchical reductions in firms. In corporations, the management hierarchy acts as a filter of information proceeding up the chain of command. With all records in electronic memory and English type languages to manipulate this data, executive assistants of the top management can prepare the reports which formerly flowed through the chain of command. This enables the corporation to automate the chain of command and create effective organizations with many fewer levels of management. Toyota has four levels of management compared to GM's fourteen. Part of the drive for efficiency in the US aims to reduce bloated management by reducing the levels of management together with their associated staff.

 

 

Paperless political economy

Currently a large decrease in paperwork internal to corporations is taking place through the creation of intranets within corporations. Within an intranet are a group of WEB folders relating to an institution that can only be accessed by members of the institution usually by using a password. One example is Dell, right here in river city. A student Brad Holt sent me an E-mail discussing how he uses the intranet at Dell. Rather than paraphrase his E-mail, I have incorporated it into the notes with some minor editing:

Hello,

I briefly looked through the notes that I printed out and I noticed that Intranets could go into the notes talking about Automation: Information.

I am not sure what you are looking for about Intranets, so I will just tell you how it helps me in my job.

I work in Tech support at Dell computers. I have access to the dell computer intranet. This intranet contains everything that I want to know about the company: job postings, Salary brackets, different benefits, my 401k information, all technical information on all the computers that we manufacture, my teams information, different solutions about each of the computers, a BBS system of how to fix different SW problems, and many other pieces of information.

I use the intranet everyday in my job. When a customer calls in I get the tag number off his computer a plug into a through the intranet and it brings up all the information pertaining to that specific computer. This is invaluable to my job, because I do not have to remember everything that each computer configuration that we manufacture, and with at least 12 new computers coming out every year, it is hard to stay on top of everything. I still have to rely on my Troubleshooting skills to narrow down the problem, but having all the information right there, helps.

I also use it when I am trying to find out anything about Dell. The intranet is a huge wealth of information. I look at my 401k information and benefits information to make sure that I am saving money and I am taken care of with my insurance. They also have a place to see how the Employee Stock purchase program is going to work this half of year.

Of course the is all not accessible by the general public. The Intranet here at Dell looks like the real Internet, but it is contained here at Dell.

I hope this helps. If you have any questions, please let me know, and I will try to answer them. Thanks.

Brad Holt

As Brad points out by using an intranet, Dell has eliminated all paper in the form of various types of corporate manuals. Other corporations are doing the same.

Manufacturers that order parts from suppliers for manufacturing products or retailers or wholesalers the order goods for resale have been shifting from paper to electronic order for the past decade. At first the process went through private networks, but now electronic ordering of parts and inventory is shifting to the Internet

Firms and government use EDI (electronic data interchange) to eliminate paperwork in ordering parts and supplies. EDI refers to the electronic exchange of business documents in a standard form between firms. EDI is already especially effective in reducing the cost associated with purchasing. Many firms are using EDI to connect directly with their suppliers' computer systems. A direct electronic connection is far more efficient than traditional paper-based purchasing procedures. It cuts costs in several ways. First, EDI reduces human data-entry time substantially and eliminates time-consuming paper transfer. Secondly, it helps firms avoid a significant number of administrative errors and it cuts down on delivery delays. Lastly, it enables a manufacturing firm to keep its inventory at minimal levels. With computer links to suppliers, the just-in-time inventory control system becomes a reasonable possibility (e.g. Harley Davidson). The business applications of EDI are certainly not limited to purchasing. Billing, price quoting, shipping and receiving can all be facilitated by the use of EDI.

But how does EDI work? It is essentially two or more computers with specialized software linked by modem. EDI requires a direct link between firms. The most cost-effective alternative is usually contracting the use of a VAN (value-added network). VAN providers use the existing phone infrastructure, but offer the advantage of EDI software knowledge and expertise as well as other types of technical support. Currently, EDI operates on the EDIFACT standard. This international standard specifies nothing about the means of message transmission. Instead, it establishes a syntax for the message, arranging its parts in standardized ways. Unfortunately, EDIFACT is incompatible with X.400, the e-mail standard which deals with the means of transmission. The proposed eventual solution to this problem is X.435, which would be compatible with both E-mail and EDI.

The E-mail standard X.400, which is now accepted worldwide, provides the carrier for EDI, computer-to-computer exchange of business s(or government) documents between organizations in a standard electronic format. For example, the automakers are using EDI to save up to $2B a year by having the computer of the automaker order parts directly from the computer of the supplier. This eliminates all the paperwork. For this move to take place the automobile firms and the suppliers must establish the format for the messages. A similar move is taking place between department stores and their suppliers. Similar progress is taking place in documents for foreign trade. Medical costs in the US could be reduced by as much as $30B by using EDI to transmit all the medical paperwork among doctors, hospitals, insurance companies, government and individuals. Again this would require the creation of an accepted standard for the communication.

EDI is currently shifting from private networks to the Internet to reduce cost. We will discuss this later in the section on business to business, B2B.

 

Government usually imitates successful innovations in the private sector. As machines talking to machines become commonplace in the private sector, such machine communication will also become commonplace within the government and between the government and political economic agents. The burden of government paperwork will ease as software firms create programs which automatically create government mandated reports and automatically send them to the appropriate government agency via electronic mail. One current example is tax returns to the IRS.

The final stage of communicating electronically among institutions requires all institutions to agree on a common standard. The standard which recently was agreed upon is the E-mail standard, x.400. Recently, all US vendors of electronic mail agreed to either switch to the international standard for organizing electronic mail or create an interface so that their clients can effortlessly communicate to anyone. This means that as the national electronic mail directory expands in the 90's, electronic mail will experience explosive growth because regardless of which vendor a customer is using he can communicate with any person listed in the national directory. The gradual emergence of this national electronic mail system will begin displacing the Post Office because electronic mail is currently much cheaper than paper mail and will continue to decrease in relative price. In the next several decades the amount of paperwork on `paper' will drop rapidly.

One important requirement for transactions on the WEB is security. The federal government and privacy advocates are in a controversy over whether the government should be able to access encrypted communications.

 

Paperless: Surf the Net

Some interesting sites to surf for the switch away from paper are:

Market Transactions

The paperwork associated with market transactions is rapidly being automated. To discuss the move of markets to the social nervous system, we need to partition market transactions into four components: making comparisons, the sale, the payment, and the delivery.

Stock and Commodity Markets

The financial asset markets (stocks, bonds, commodities, futures, and so on) have proceeded the furthest towards total immersion in the social nervous system. A financial market that has moved totally to an electronic network is the over-the-counter market, NASDAQ. This market is a totally computerized communications network with nodes (market makers) for each stock. Once the information comes up on the screen, the deal can be consummated. Before automation, the over-the-counter market was very small. Now it rivals the NYSE. The success of NASDAQ forced the other exchanges to automate.

With improved communications and networks, financial players such as pension funds and mutual funds can trade stock between themselves and avoid the traditional market altogether. Reuters, a British financial firm, has established two worldwide automatic trading systems, Instinet and the Crossing Network, in which traders can consummate transactions without brokers. Another automatic trading system is POSIT. To reduce the possibility of fraud and speed up transactions, the commodity markets created their automatic trading system, GLOBEX.

In addition, financial institutions have created whole new classes of financial assets, such as junk bonds and derivatives. The latter include options, futures and composite securities which bundle securities to reduce market risk. These composite securities did not perform well in 94.

Another aspect of the impact of computers on asset markets is the new computer programs to play the market. These programs are based on a variety of quasi-intelligent software and optimization techniques. These programs contributed to the magnitude of the crash in 1987. Before these programs were introduced into the asset marketplace the stock market might take several months to correct for excessive evaluation. Now such corrections are frequently made in a single session.

For the individual investor the new computer-communications technology has made possible access to asset markets through personal computers 24 hours a day. There has been a proliferation of information services accessible through personal computers such as the Dow Jones information service, which enable the customers to make comparisons between financial alternatives. Consumers can also obtain financial information and brokerage services through AOL, CompuServe, Prodigy, and brokerage firms directly on the Internet. You can trade any time of the day or night. Also, one aspect of the growth of Internet has been in increase in Online Trading (Trading : another source) and information sources.

Other markets

Other markets are following the trends set by the financial markets. In the residential real estate market, listings have been computerized. The broker, not the customer, however, makes the comparisons. In consumer shopping, catalog sales are growing faster than sales in malls. In many marriages, both husband and wife work which leaves less time for shopping in stores. Currently, the shift of consumer and industry markets into the living room is in its infancy. One important aspect of the increase in types of Internet shopping listed below is the move towards dynamic pricing:

  1. Computer Stores in the information utilities such as America Online, CompuServe and Prodigy offer a wide variety of merchandise through your personal computer. These shopping services have a fundamental problem. The channel capacity into home computers is so restricted consumers using these electronic catalogs can obtain little more than the product code, the basic attributes, and the price. Until high capacity digital communication is commonplace in the home, they will not be able to offer enough information for intelligent comparison shopping.
  2. Telemarketing cable channels such as the Home Shopping Network offer a sequence of merchandise with big promotions. The consumer has no control over what is being displayed. There is a schedule so that consumers can selectively view these channels.
  3. Numerous stores and corporations offer their wares over the Internet. For example, Dell sells computers over the Internet This is the fastest growing segment of electronic markets. The growth of these markets is restricted by the fact that most communications over the Internet are not secure. Hackers can steal credit card numbers and other sensitive information. This security problem is rapidly been solved by using encrypted communications. One of the most advanced commercial networks, which has secure communications, is the CommerceNet. (Study this network to find out the wide range of services such as paperless invoicing being offered).
  4. The Internet is now being used for auctions. Online auctions have very quickly grown to a sizable business.
  5. Priceline is trying to expand its business by aggregating demands in order to obtain lower prices.
  6. Another aspect of how the Internet is creating dynamic pricing is reverse auctions where the buyer states what he or she wants and firms bid to supply the good at the lowest price. Examples are eWanted, Respond, myGeek, Nextag and Imandi.
  7. A new type of site is an information aggregator that provides consumers information without directly selling products. One such information aggregator is Consumer Reports Online that charges a flat fee for access, and another is CNET that charges clients fees when viewers pass through to their site to purchase and item that CNET has provided information. Most of CNET's revenue is from advertising, which causes a potential if not real conflict of interests in the quality of the information that they provide..

The shift of markets to the social nervous system is accelerating with the increase in the capacity of the social nervous system. The current security problems has been partially solved as the various participants agree on the standards for obtaining secure communications using cryptography. One aspect of secure communications is a digital signature which uses a public and private key so that the receiver can verify the origin of the document and verify that no one has tampered with the document. Problems still exist as hackers find ways to defeat the current security codes. The reaction is for software firms to create patches correcting the problems. For a major expansion in home markets communication will have to include both voice and interactive image. Image communication is less important in industrial markets in cases where the buyer is purchasing standardized items. To exercise choice the viewer will have to control the catalog on the screen and must be able to obtain detailed information on demand.

Internet Shopping

This section was created by the top four students in ECO350K.1 during the Fall semester of 1997 :

Vladimir Chemadurov, Sarah Goodpastor, Garrett Pumblechook Jones, and Jack Daniel Long

The advancement of the Internet has changed the way consumers shop for goods.  Online shopping is the newest development in consumer buying practices.  By shopping online consumers have the ability to compare products without leaving their homes.  Consumers no longer need to drive from store to store in order to compare products they wish to buy.  For example by connecting to  AutoTrader  web site one can narrow his/her search for an automobile by entering in search criteria.  Go to the  AutoTrader decision guide and search for the car of your dreams.  Do you want 4 wheel drive, sunroof, 5-speed transmission? After enter desired attributes then compare your results side by side.  This enables the consumer to begin the test driving process with a better idea of the car he/she wants.

In large book stores it is often difficult to find the specific book you are looking for.  There are hundreds of thousands of books to search through, and numerous categories to choose from.  Book stores can not possibly keep millions of books on hand due to the large overhead cost.  At the  Amazon  web site you can search for any book by using a keyword search engine.   The web site contains a database of 2.5 million titles.

Use the  Amazon ISBN Search  mechanism to search for my book by entering in the ISBN code for the book, 0792393031.  Try searching by my last name to see if I have any other books available.  Then try and find your other economics books and compare the prices to your local college bookstore.

Traditional shopping at the grocery store has forced consumers to travel to other locations.  While the mass gathering of food at supermarkets has greatly improved efficiency in shopping, the web offers even more convenience.  The  NetGrocer  web site consumers can browse through products, receiving a nice picture, price, and volume as they shop.  Another great feature of this type of shopping is that it allows you to make a grocery list that will be filled automatically and sent to your home as often as you specify.  This site also allows the consumer to compare prices quickly and easily from grocer to grocer.

Go to  Netgrocer  and create your own shopping list.  Be sure to include bath soap, maple syrup, and hot fudge topping.  Then find out how many different varieties of Spam are sold online.  Finally compare the total protein content of Spam with Libby Vienna Sausage.  Don't forget to check out the international cuisine part of the web site!

The Internet has changed the possibilities for shoppers all around the world.  The traditional methods of shopping are being rivaled by the mass of information services on the web.  These sites on the web offer greater convenience to the consumer.  While consumers may only use websites for luxury items as tools for comparison, consumers will use web shopping for necessities and mundane shopping, like grocery shopping, because of the need for convenience and lack of personal time.

Surf the web:
--Search the Dell website and put together a computer with all your needs (Be sure to include a fast modem so you can download pictures faster)

--Search the Amazon website and see if Dr. Norman's book is a good buy.  Search for books of your favorite subject.

--Search the J Crew website to see if they have blue jeans in your size.

--Search a diamond is forever to see what kind of diamond you can afford on your two months salary.

--Go to the apparel section of the Wal Mart website and see where I get my wardrobe.

--Compare two detachable face in dash CD players with a booming bass, in the $500 - $600 range.

If you are interested in setting up your store on the Web, you might start at Sell it on the Web, a site that provides on overview of what is involved.
 

Payments mechanism

The payments mechanism is gradually becoming completely immersed in the social nervous system. Much technological advancement is directed at reducing the cost of current payment mechanisms such as checks and currency. Magnetic numbers on checks facilitate machine operations. A check can be cleared automatically once the amount has been entered in the computer, if the checks are not returned to the customer. Automatic tellers for transactions and dispensing currency are becoming commonplace. One factor which is inhibiting a more rapid switch to automatic tellers is the cost structure. Banks are charging as much as $1.00 per transaction at automatic tellers and are making no charges for the service of human tellers. This is an example where tradition is a stronger incentive than economics. The underlying costs are about 10 cents for the electronic approach and 1.45 for the human approach.

Technology has created new services such as Visa and Master Charge. Technology has also created funds transfer systems: CHIPS and Fedfunds. The incentives to use the technology lies in the ability to debit a persons account at the time of purchase. Visa and Master Card have a great incentive to do this to reduce float. Stores would eliminate bad checks if payment was instantaneous. To compensate for the loss of float, wages could be paid automatically on a daily or even hourly basis. The switch to an immediate electronic payment system is primarily a matter of standards and a question of the costs and benefits of the investment. The system would have to interface with a wide variety of hardware and software used by banks. An interface standard is required. While the electronic system would be much more efficient, it is a public good. Thus, all will benefit, but individual incentives for its creation are lacking. The move to immediate payment will probably proceed through the expansion of the bank ATM system to include point of sale terminals and by the creation of competing debit credit cards by Visa and Master Charge. For example, here in Austin, customers could for a time purchase gasoline from Diamond Shamrock with their ATM cards. The progress will be gradual and overnight payment will occur long before instantaneous payment occurs. Note that for an automatic clearing mechanism to be desirable for both customers and stores, it would have to be able to reliably process the busiest Christmas shopping day with no more than a ten second delay.

Another trend will be the creation of electronic cash cards which individuals will obtain from their banks. Unlike Visa and Master Card, these bank cash cards provide the customer with anonymity. Anonymous cash cards are opposed by police organizations because they would make it easier for drug pushers to launder money. Entrepreneurs are creating several new payment mechanisms on the Internet, which hackers would find very difficult to intercept.

Market Transactions: Surf the Net

Some interesting sites to surf for electronic market transactions are:

Business to Business--B2B

In the definition for GDP we measure final production to final consumers. But in the economy most economic activity is in intermediate products and services among businesses. The growth of e-commerce for business to business transactions is growing much faster than business to final consumer, eg Amazon.com type retail sales.

As in any major information technology endeavor the first step is to establish the standards. Because the Internet is cheaper than private networks and the Internet has created a new more powerful standard, XML that will gradually displace HTML, e-commerce will grow quickly on the Internet For news on how XML is being used to promote e-commerce see XML.org. Also, business leaders formed a consortium called Rosetta net to create the standards for the new XML based international Internet business e-commerce. For e-commerce to become the global way of doing business, standards must be created for representing catalogues, production information, and all aspects of transactions.

For web sites for individual firms selling to other businesses, advances in software are constantly adding new features. Sales on the Internet are integrated electronically with production and distribution and office functions such as accounting. Go to BowStreet to see their Factory softwre for rapid creation of business web sites. It enables the customer firm as well as seller firm to integrate the transaction electronically into its business software packages. In creating web sites software for B2B, firms have made an effort to have their software backwards compatible with current standards and flexible enough to easily conform to future standards. Cyclone emphasizes this point in their software. What they are emphasizing is that with their package you can relate to other firms as long as they have any of the many supported standards. For household consumers, firms like Amazon.com send an e-mail to confirm the order. Selling to businesses requires that you can give them digital documents in a form that they can immediately process without any keyboard entry.

Entrepreneurs are creating Web sites that act as a cyber location for a market bringing buyers and sellers together. These cyber markets work best in markets where either on the demand or supply side is fragmented into a large number of players. Also, the market must be either focused on one industry or one aspect of business across industries.

Some examples of Cybermarkets

Prices are set using a variety of mechanisms. In e-Steel there is an exchange where either the buyer or seller can enter a price or search a list of already entered prices. Candy for the candy industry has catalogues that the buyer can look through. iMark is a market for used equipment across industries. These markets to be viable have to attract a large number of buyers and sellers. Once they become viable, they will attract most of the participants in a market making the creation of competition difficult. The cyber market makes a profit by charging fees. In a fragmented market these fees are much less than the fees of current middlemen. Also, sites like RailNet greatly speed up the bidding process and increase the number of bids. In short, they can greatly increase market efficiency. One guestimate placed the sales of these types of markets in excess of $1T by 2002. The big three automakers have created a single portal, e auto portal, to deal with all their supplies.

One ominous aspect of B2B is weblining. Once an e-business identifies a customer, it knows how profitable it is to do business with this customer. E-businesses are focusing all their promotions and special service on their best customers and giving ordinary customers higher costs and less service. This follows market logic, but many of you may consider this objectionable from an equal treatment standpoint. Also, there are serious issues about the accuracy of the analysis programs.

 

Some articles on B2B

Major players selling B2B software are:

A host of smaller players can be found at Yahoo ecommerce software

Business to business is creating a software and service rental business. Entrepreneurs are creating a service industry to rent servers and the application software to run e-business. The clients do not have to tie up funds in servers and the associated software. The problem is hackers that blasted sites with overload recently and the problems of security breaches. Firms specializing in renting e-business software are more likely to be up on security problems than their clients. Some firms in this area are:

Intelligent agents and E-commerce

Some computer scientists have visions of households deploying intelligent agents to search for the best price. If a few households do this the resources involved are small. But, as more and more household do this, it will start requiring major resources in computing power and storage on servers. Administrators of servers will deny agents access, ration resources, or charge fees for access. If we look at this from the perspective of Adam Smith's parable of specialization of pin manufacturing, a likely solution are WEB sites that specialize in obtaining price information and displaying it. One current example is CNET that provides prices and reviews of computer equipment.

Do WEB sites have an incentive to reveal prices? This depends. The lowest price seller always has an incentive to reveal his or her prices. Thus a site providing prices can always obtain this price. If the site providing best price information becomes popular and consumers buy products through that site, then if you do not have your prices listed there, you will lose customers. This will increase the number of sellers revealing their prices and create market pressure for uniformly low prices.

The most interesting aspect of intelligent agents are measures and countermeasures in e-commerce. Firms offer the following types of software:

Firm
Service
Countermeasures
Auctionwatch Obtains price and product data from WEB auction sites

Block agent from access. Sue

Clickthebutton Obtains price data in real time

Beware!!! It is a Parasite

Ichoose Searches for better deals iChoose is now link manager software
IQOrder Wireless phone price comparisons while in store Bought by InfoSpace is now IntelliShopper
Liaison's Dexter Technology Price and other data from large number of sites no longer exists

Ichoose is interesting because while it searches for a better deal for a customers at a particular site, the site, if it has a contract with Ichoose, can offer the customer a better deal not to lose the customer. Ebay, the biggest online auction site, blocks inquires from Auctionwatch software. Software developers for price searching are constantly improving their software to fool the sites that they are searching. Large sites are dreaming up new countermeasures if they do not want to be observed.

Information Services

Information services of all kinds are an important growth sector of the economy. For example, lawyers have an information service called Lexis which is used to locate all cases involving a precedent. In this subsection let us consider just three: (1) information utilities, (2) credit rating services, and (3) airline reservation systems. Another giant system which we will not discuss are medical records used by life insurance companies to evaluate potential customers.

Private information utilities such as America on Line, Prodigy and CompuServe are commercial services available through your personal computer modem in your home. There are also public domain information services on the Internet. These information utilities offer a wide variety of information services. For example, a partial list of the services offered by CompuServe is: (1) News, Sports, and Weather; (2) Electronic Mail; (3) Reference library; (4) Shopping; (5) Financial Information; (6) Travel & Leisure ; (7) Entertainment and Games; (7) Membership Support Services. These services include such specifics as a brokerage service, an airline/hotel reservation system, shareware software, and member forums using interactive text communication. As a growth industry, information utilities must overcome certain problems to reach market saturation such as current TVs. First the systems must be made much more ``user friendly'' to attract a wide audience. In this regard perhaps America Online has gone the farthest with an icon interface (Mac or Windows) so users can point and click. Second, these utilities must keep experimenting to provide a mix of services that households want at a competitive price. Finally, man is a visual animal. As the capacity of the communication system expands the use of dynamic images will greatly increase to provide a visual environment which humans prefer.

The second example is the growth of computerized credit ratings. Currently credit information on almost every household in the US is stored in these systems. Merchants for a fee can rapidly determine the credit rating of a customer. The positive aspect of this development is that it makes our credit oriented consumer markets possible. Without these files it would be a very difficult, time consuming process to obtain credit for an automobile or a house. A basic problem is the accuracy of the files. The industry lobbied and obtained a national law, the Fair Credit Reporting Act of 1984, which supersedes common law absolving them from law suits over the accuracy of the data. Over time consumers have obtained the right to examine their files. However, the onus is on the consumer to correct the information in the files. In an extreme case he might have to go to court to have his file corrected. If these firms had remained under common law, they would have been expected to exercise due care in collecting the data. You could sue them for damages. Under common law, collecting the data would be more expensive; however, there would be many fewer errors in individual records.

Airline reservation systems are another innovation based on computers. Without airline reservation systems, it simply would not be possible to process the volume of airline traffic. In this respect alone airline reservation systems are an innovation. But these systems are also very interesting because of the inherent conflicts of interest. Travel agencies use the airline reservation systems to book flights for customers. The airline developing the system will place its flights first. During the collapse of Braniff, it was alleged that the American Airline reservation system showed Braniff flights as always being full. This is possibly true because the programmers were forced to take a cut in pay and could not fly Braniff flights because of Braniff's tactics.

Airline firms with reservation systems have a competitive edge over airline firms without such reservation systems because the former can easily calculate the profitability of every flight listed in the system. They know how many passengers were on board and can make an excellent estimate of the rival's costs.

For a truly competitive market, each airline needs equal treatment. Can this be obtained when the airline providing the information service has a conflict of interest? The fact that American sells this service to lessor airlines including the new Braniff indicates that the conflict of interest issues are being at least partially resolved by contract negotiation.

A characteristic of the new information systems is that they are capital intensive in hardware and software. As customers become computer literate, they will be able to make their own reservations using the reservation systems in AOL, Internet, CompuServe, and Prodigy.

Over time I expect all types of services to gravitate to the Web. One of the most interesting is Ernie, an online consulting service offered by Ernst and Young. Forty percent or so of the cost of consulting is overhead in the form of expenses moving the consultants to the clients site where they get room, board, car, and a flight once a week home. As Ernie consulting uses e-mail the cost is much less.

Information Services: Surf the Net

Some interesting sites to surf for electronic market transactions are:

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norman@eco.utexas.edu
Latest revision: 16 Jan 06