Entering the 21st Century:

Competition Policy in the World of 

B2B Electronic Marketplaces

A Report by the Federal Trade Commission Staff

October 2000
FEDERAL TRADE COMMISSION

ROBERT PITOFSKY Chairman

SHEILA F. ANTHONY Commissioner

MOZELLE W. THOMPSON Commissioner

ORSON SWINDLE Commissioner

THOMAS B. LEARY Commissioner

Richard G. Parker Director, Bureau of Competition

Jodie Bernstein Director, Bureau of Consumer Protection

Jeremy I. Bulow Director, Bureau of Economics

Debra A. Valentine General Counsel

Rosemarie Straight Executive Director

Policy Planning Staff

Susan S. DeSanti, Director

William E. Cohen, Deputy Director

Gail F. Levine, Assistant Director

Michael S. Wroblewski, Advocacy Coordinator

R. Bhaskar

Hillary Greene
i

TABLE OF CONTENTS

INTRODUCTION

EXECUTIVE SUMMARY

A. Overview of B2B Electronic Marketplaces ..................... . 1

B. Efficiencies of B2B Electronic Marketplaces .................... . 1

C. Antitrust Analysis of B2B Electronic Marketplaces ............... . 2

1. Competition Issues in the Market for Goods and Services .... . 2

a. Information-Sharing Agreements ................. . 2

b. Joint Purchasing .............................. . 3

c. Exclusionary Practices ......................... . 3

2. Exclusivity Could Affect Competition Among Marketplaces ... . 4

D. Conclusions and Themes for the Future ......................... . 5

PART 1

OVERVIEW OF B2B ELECTRONIC MARKETPLACES

A. Business-to-Business Commerce .............................. . 1

B. Electronic Business Communication ........................... . 2

1. Legacy Systems ..................................... . 2

2. Internet ........................................... . 4

C. B2Bs .................................................. . 5

1. Direct and Indirect Inputs ............................ . 6

2. Horizontal or Vertical Organization ...................... . 6

3. Mechanisms for Establishing Prices of Purchases and Sales .... . 7

a. Catalog ..................................... . 8

b. Auction .................................... . 10

c. Exchange ................................... . 11

d. Negotiations ................................ . 11

4. Ownership and Control .............................. . 12

5. Revenue ........................................ . 14

a. Transaction-Related Fees ....................... . 14

b. Membership Fees ............................. . 14

c. Service Fees ................................. . 15

d. Advertising and Marketing Fees .................. . 15

e. Data or Information Sales ...................... . 16

6. Access to Information ............................... . 17

7. Barriers to Entry, Network Effects, and Intellectual Property 

Issues ........................................... . 19

a. Incentives Used to Attract and Retain Volume ....... . 21

b. Requirements Used to Obtain and Retain Volume .... . 22
ii

c. Intellectual Property Issues ..................... . 23

8. Switching Costs and Marketplace Interoperability .......... . 24

PART 2

EFFICIENCIES OF B2B ELECTRONIC MARKETPLACES

A. Actual and Potential Efficiencies .............................. . 1

B. Administrative Costs ....................................... . 2

C. Search Costs ............................................. . 4

D. New Markets ............................................ . 7

E. Maverick Purchasing ....................................... . 8

F. Joint Purchasing .......................................... . 9

G. Systems Integration ........................................ . 9

H. Supply Chain Management ................................. . 10

I. Collaborations ........................................... . 12

J. Middlemen ............................................. . 12

PART 3

ANTITRUST ANALYSIS OF B2BS

A. Market for Goods Bought & Sold on B2Bs ...................... . 3

1. Information-Sharing Agreements ........................ . 3

a. Factors Suggesting Antitrust Concern .............. . 7

b. Efficiencies ................................. . 10

c. Avoiding Antitrust Risk ........................ . 11

2. Monopsony ....................................... . 13

3. Exclusion ........................................ . 16

B. Market for Marketplaces ................................... . 23

1. The Nature of Marketplace Competition ................. . 23

2. Case Law ........................................ . 24

3. Potential Competitive Concerns ........................ . 28

4. Analytical Framework and Guideposts ................... . 32
1

 This Report represents the views of the staff of the Federal Trade Commission; it does

not necessarily reflect the Commission's views or the views of any individual Commissioner. 

2

 Morgan Stanley Dean Witter (Stmt) 37. See also Salomon Smith Barney (Stmt) 77 

(B2B stocks were worth approximately $130 billion according to the report issued in January

2000).

3

 Morgan Stanley Dean Witter (Stmt) 37 (online B2B purchases will grow to $1.4 trillion

by 2002). See also Boeth (Stmt) 2 (Jupiter Communications predicts that “the nation’s online

B2B revenues will reach over $6 trillion by 2005 – a 20-fold increase in just five years”); Tarkoff

18 (“Gartner Group ... predicts that by the year 2004, there will be $7.3 trillion worth of B2B ecommerce”); Kinney (Stmt) 2 ($2.7 trillion by 2004, according to Forrester Research). 

4

 See FTC Chairman Robert Pitofsky, “Remarks at B2B Electronic Marketplace

Workshop,” June 29, 2000, available at <www.ftc.gov/bc/b2b/b2bpitofsky.htm> (last visited

October 2, 2000). See also Federal Trade Commission Act of 1914, 15 U.S.C. § 6(a), 15 U.S.C.

§ 46(a)). 

5

 Materials from the workshop are available at www.ftc.gov/bc/b2b/index.htm.

6

 Workshop panelists and written submissions are listed in Appendices A and B,

respectively.

INTRODUCTION1

B2Bs are business-to-business electronic marketplaces that use the Internet to

electronically connect businesses to each other. They have been characterized as the new business

development most likely to transform how business is conducted in the twenty-first century. 

Largely unheard of only a few years ago, B2Bs are now estimated to handle billions of dollars in

purchases,2 and although it is difficult to gauge the reliability of such predictions, some estimate

that the volume of commerce transacted through B2Bs will reach into the trillions of dollars over

the next five years.3 

Given the importance of this new business development, the Federal Trade Commission

drew upon its unique mission “to study competition and work with the business community and

others to detect new trends”

4

 and hosted a B2B public workshop, “Competition Policy in the

World of B2B Electronic Marketplaces,” on June 29 and 30, 2000.5 Organized by staff of Policy

Planning with input from more than 200 sources, the workshop included 65 panelists and had an

attendance of over 600 people. Participants included entrepreneurs who have been operating or

forming B2Bs and antitrust practitioners, economists, and legal scholars who have been working

with or studying B2Bs. Approximately 30 statements were submitted in response to the FTC’s

request for comments.6

Workshop participants characterized B2Bs as both the result of and contributing to larger

trends in the economy that are already in progress, such as the advent of new technologies and the
2

increasing globalization of markets. The Internet technology that powers B2Bs is potentially

transformative in that it can speed business-to-business communications into “real-time”

transactions, conducted globally, with heightened accuracy and reduced waste, thus increasing the

nation’s productivity. 

This Staff Report seeks to summarize what was learned at the workshop and to lay the

foundation for understanding how to answer traditional antitrust questions in the context of new

B2B technology. The hope is that this foundation will facilitate further dialogue among antitrust

officials, the B2B industry, antitrust practitioners, legal scholars, consumer groups, and other

experts with an aim toward developing a common understanding of the types of B2B structures,

rules, and practices that, in particular circumstances, are most likely to ensure both antitrust

compliance and the efficiencies that B2Bs promise.
1

 See Teagarden 100.

EXECUTIVE SUMMARY

Overview of B2B Electronic Marketplaces Although treated as a group in this Staff

Report, B2Bs are remarkably diverse. B2Bs serve a broad array of industries, from metals to

fresh produce to hotels to chemicals to energy, with some B2Bs focusing horizontally (across

various industries) and others vertically (on only one industry). Through B2Bs, participants buy

and sell a wide variety of goods and services, from materials to be used in a firm’s final product to

things that just keep the firm running. B2Bs can be organized under a variety of ownership

structures: some are founded by companies who use them; some are founded by third parties who

do not plan to buy or sell through them; some are a blend of the two. Prices in B2Bs can likewise

be established in various ways: by auction, catalog, a bid-ask system, or negotiation, for example. 

B2Bs may earn revenue from multiple sources, including transaction-related fees, membership

fees, service fees, advertising and marketing fees, and sales of data and information. Market

forces are continuing to sort out issues such as which, and how many, B2Bs will succeed, the

extent to which potential efficiencies will be realized through B2Bs or instead through private

networks, and the likely extent of interoperability among B2Bs.

Efficiencies of B2B Electronic Marketplaces B2B marketplaces have the potential to

generate significant efficiencies, winning lower prices, improved quality and greater innovation for

consumers. Many panelists stated that savings and increased competition through B2Bs could be

substantial; indeed, one business analyst commented that, “[f]rom a very macro perspective, B2B

e-commerce is simply the next generation of productivity growth for the U.S. economy.”

1

B2Bs can gain efficiencies in a variety of ways. B2Bs can reduce administrative costs,

such as the time and energy a business expends to process an order and correct any mistakes in its

processing. B2Bs can reduce search costs, that is, the costs buyers incur identifying suppliers and

their offerings, and vice-versa. For example, B2Bs can make it easier for buyers to comparisonshop, replacing thumbing through bulky paper catalogs with quick and efficient mouseclick

searching. Reduced search costs also mean that suppliers can have greater and cheaper access to

more potential customers. Such reduced search costs can make new sales channels viable,

creating markets for goods and services not traded before. 

B2Bs can help check unmonitored corporate spending by using technology to enforce

spending and other limits on in-house buyers. B2Bs can facilitate efficient joint purchasing, which

may help reduce transaction and manufacturing costs and produce other cost-savings. B2Bs can

be integrated with a firm’s internal computer systems in order to continue reaping, and expanding

upon, the benefits of the earlier computer-based systems. Enhanced efficiencies may also arise

from increased collaboration facilitated by B2Bs, such as joint product design by the various firms

involved in putting a product together. Finally, the heightened interaction between buyers and

suppliers that B2Bs offer may facilitate supply chain management. That is, B2Bs could enable

suppliers all along the supply chain, potentially reaching multiple tiers of suppliers, to learn more

quickly what buyers want and when they want it, reducing forecasting that traditionally has

proved inaccurate and expensive. 
2

 To date, the Commission has reviewed only one B2B. See In re Covisint, Inc., File No.

001 0127 (Sept. 11, 2000), closing letter to General Motors Corp., Ford Motor Co., and

DaimlerChrysler AG available at <www.ftc.gov/os/2000/09/covisintchrysler.htm> (last visited

October 23, 2000). In its letter closing the investigation of whether the formation of Covisint

violates Section 7 of the Clayton Act and terminating the waiting period under the Hart-ScottRodino Antitrust Improvements Act, the Commission found no further action warranted at this

time but stated as follows:

Because Covisint is in the early stages of its development and has not yet adopted bylaws,

operating rules, or terms for participant access, because it is not yet operational, and in

particular because it represents such a large share of the automobile market, we cannot say

that implementation of the Covisint venture will not cause competitive concerns.

Id.

2

This is an impressive list. Although panelists noted that efficiencies may be more easily

articulated than realized, the efficiencies that B2Bs may offer merit serious attention in light of

their significant potential for cost savings and increased competition.

Antitrust Analysis of B2B Electronic Marketplaces B2Bs may raise a variety of

antitrust issues. Workshop panelists reported, however, that the antitrust concerns that B2Bs

may raise are not new and agreed that B2Bs are amenable to traditional antitrust analysis. Some

panelists commented that, when antitrust concerns do arise, familiar safeguards may be sufficient

to address those issues. Indeed, it appears likely that many potential concerns could be eliminated

through well-crafted B2B operating rules. Consequently, the discussion that follows does not

warn of insoluble problems, but rather lays the foundation for identifying and addressing

circumstances that warrant antitrust scrutiny.2 

Rather than address all potential issues, this Report focuses only on those issues that were

discussed extensively at the workshop. The efficiencies and possible enhancements to

competition that B2Bs can offer stem in part from their collaborative nature, but collaboration

among firms also could facilitate anticompetitive conduct in two types of broadly defined markets: 

the markets for goods and services traded on B2Bs (or derived from those traded on B2Bs) at

both the seller and the buyer levels, and the market for marketplaces themselves. In the market

for goods and services, workshop panelists noted that competition may be affected by the extent

to which information is shared and by whether joint purchasing or exclusionary (membership or

access) practices are implemented. In the market for marketplaces, panelists suggested that

exclusivity could affect the development of competition.

Competition Issues in the Market for Goods and Services: InformationSharing Agreements The Internet allows firms to share information at an unprecedented rate. 

Depending on the operating rules, participants in a B2B could learn in real time, for example, the
3

identities of the purchaser and seller in a transaction, the quantity purchased, the date and time of

the transaction, and the purchase price. B2Bs capitalizing on that power can increase efficiencies

in the supply chain and facilitate prompt competitive responses in the market, but they also might

injure competition by facilitating price or other anticompetitive coordination. Workshop panelists

also voiced concern about whether a B2B’s operating rules would permit its participant-owners –

particularly those with seats on the B2B’s board of directors, or places in upper management of

the B2B – access to sensitive data about their rivals. 

The antitrust analysis of agreements to share competitively sensitive information would

ask whether they might facilitate coordination on price or other terms. The analysis would

examine the structure of the market that the B2B serves, including market concentration and the

market shares of those sharing the information, whether the information was shared among

competitors, the kind of information being shared, and the reasons for sharing. If a market is less

susceptible to collusion, information-sharing through B2Bs generally poses fewer collusion risks.

All other things equal, sharing information relating to purchases of direct goods may convey

competitively sensitive information about a rival’s business and, consequently, is more likely to

raise antitrust issues than the sharing of information relating to indirect goods. Similarly, sharing

contingent or future pricing information is generally more troubling than sharing information

about past transactions, and sharing competitively sensitive information that is uniquely and

readily found on the B2B is generally more likely to raise concern than sharing such information

that can easily be found elsewhere. Panelists identified many possible mechanisms for handling

these concerns, including erecting firewalls within the B2B, segmenting catalogs, and other

measures. 

Joint Purchasing Several panelists voiced concern that B2Bs, through

operating rules, could allow the exercise of monopsony power. Monopsony is buyer-side market

power that lets a buyer or buyer group drive down the purchase price of an input by buying less of

it and, therefore, depress output. The concern arises most directly when a B2B could be used by

a large buying group to coordinate the reduction of their purchases in order to lower price.

Panelists stressed the importance of asking whether the buyer group accounts for a

sufficient share of the buying market such that reducing its purchases would likely depress the

price of the inputs bought. They also emphasized that buyer groups driving prices down through

monopsony power are not to be confused with buyer groups that get better prices through

increased efficiencies, such as by savings to suppliers realized in sales to the group. 

Exclusionary Practices Several panelists voiced concern about the

potential for exclusionary operating rules, and the possibility that some B2Bs would discriminate

against, if not overtly exclude, the rivals of its owner-participants. Panelists noted that

exclusionary practices (such as presenting information on the screen in a way that favors the

B2B’s owners or using discriminatory operating rules to leave rivals with reduced functionality or

higher costs) might raise rivals’ costs of doing business and limit their ability to provide effective

competition in markets for the goods that they sell. 
3

 “Goods” refers to services sold and purchased through B2Bs as well.

4

Analysis of this issue would focus first on the extent of the disadvantage that rivals likely

would experience if B2B access were denied or limited, taking account of any substitutes, such as

offline markets, that could be used equally well to buy or sell the goods.3 Several panelists

suggested that strong network efficiencies in an established B2B might make alternatives

significantly more costly and less competitive. The analysis would also inquire whether the effects

on rivals’ costs could be deterred or counteracted by entry of alternative marketplaces or by

counter-strategies that rivals might pursue. 

Next, the analysis would examine the likely impact on competition in the markets in which

the excluded firms participate. If the excluded rivals were important to maintain effective

downstream competition (e.g., for finished products), exclusionary conduct that significantly

raised their costs may cause anticompetitive harm. The analysis would consider factors such as

downstream market concentration, theories of unilateral and coordinated anticompetitive effects

in the downstream markets and downstream entry, as well as any unique competitive significance

of the excluded firms. Finally, if anticompetitive harm were likely, the analysis would ask whether

the exclusion was reasonably necessary to achieve procompetitive benefits that likely would offset

the anticompetitive harm. 

Exclusivity Could Affect Competition Among Marketplaces Several panelists

expressed concern that a B2B might undermine the development of competition in the market for

B2Bs (and any effective substitutes) by “over inclusion” of industry members or by improperly

encouraging or requiring buyers or sellers to deal with it to the exclusion of other B2Bs. The

antitrust inquiry would ask whether the exclusivity practices leave available sufficient buying,

selling, or other support to sustain alternative marketplaces capable of maintaining competition. 

Indeed, to the extent that ownership interests yield incentives that result in de facto exclusivity or

“over inclusion,” the antitrust inquiry would be structured in the same manner.

To capture business, a B2B may use a variety of incentives – such as promises of rebates,

revenue-sharing, or profit interests for committing some amount of volume to the B2B – or

restrictions, including rules imposing minimum volume or minimum percentage requirements,

bans on investment in other B2Bs, or pressure on suppliers and buyers to urge them to trade on a

particular B2B. Indeed, exclusivity practices could exacerbate potential effects from network or

other scale economies that may make it difficult for an entrant to start small, attract the necessary

volume, compete effectively, and grow to become a significant factor in the market. 

If a B2B’s overinclusiveness or exclusivity practices do not leave sufficient available

support to sustain alternative B2Bs, exclusivity may cause anticompetitive harm. If harm appears

likely, the analysis would ask about procompetitive benefits attributable to exclusivity. 

Although inquiry into these issues is highly fact-intensive, some guideposts can be planted. 

All else held equal (including the ability to achieve efficiencies and innovations), competitive
5

concerns are magnified (i) the greater the market share of the B2B participant-owners; (ii) the

greater the restraints on participation outside the B2B; and (iii) the less the interoperability with

other B2Bs. This does not mean that industry consortia B2Bs are presumptively unlawful or that

minimum volume commitments cannot be imposed in many circumstances. It does suggest that

high levels of industry ownership or substantial minimum purchase requirements will likely draw a

closer look.

Conclusions and Themes for the Future

B2Bs differ in many respects, which is not surprising, given the enormous variety of

offline business commerce that B2Bs seek to move online. Structures, operating rules, and

practices that may make good business sense in one set of market circumstances may prove costly

and inefficient in other business settings. In carrying out its enforcement responsibilities, the FTC

and industry will likely benefit from further dialogue about the types of B2B structures, operating

rules, and practices that, in particular circumstances, are most likely to ensure both antitrust

compliance and the efficiencies that B2Bs promise.
1

 B2C refers to business-to-consumer commerce and has been the subject of considerable

attention in its own right. However, for instant purposes, B2C falls beyond the scope of this

report. To the extent it was addressed by the participants, it was in the context of distinguishing

B2B from B2C commerce, with some noting that B2B commerce can be even more complex. 

See, e.g., Salomon Smith Barney (Stmt) (“Salomon Smith Barney (Stmt)” hereinafter refers to

B2B e*commerce – A Vertical and Horizontal Perspective, January 2000) 97-100; Bye (Stmt) 4-

5. B2G refers to business-to-government commerce. B2G commerce is treated as a subset of

B2B commerce in which one of the businesses is the government. See infra nn. 39-41 to Part 2

and accompanying text.

2

 Erick Schonfeld, Corporations of the World, Unite!, E-Company, June 2000, at 125. 

3

 On its broadest level, “e-commerce” refers to “any trade or commercial transaction that

is effected via electronic means; this would include such means as facsimile, telex, EDI, Internet,

and the telephone.” Bye (Stmt) 4. This report adopts the more narrow and more common

definition of “trade that actually takes place over the Internet.” Id. 

1

PART 1

OVERVIEW OF B2B ELECTRONIC MARKETPLACES

Part 1 discusses the contours of business-to-business commerce and how the Internet

provides new avenues for that commerce. It then surveys several key aspects of B2B

marketplaces, such as what inputs are traded, whether the B2B is organized vertically or

horizontally, what pricing mechanisms are used, who owns or controls the B2B, and how revenue

is generated. Last, Part 1 explores these and other factors within several contexts: information

sharing; barriers to entry, network effects and intellectual property issues; and switching costs and

marketplace interoperability.

A. Business-to-Business Commerce 

At the outset, some definitions are in order. “Business-to-business commerce,” or

industrial purchasing, refers to the many different types of interactions relating to the purchase

and sale of goods and services between businesses.1 Some estimate the total of business-tobusiness commerce as “more than 70% of the regular economy.”

2

 Given the size of the U.S.

economy, it is clear that even a small increase in efficiency for that 70% could have profound

implications for businesses and consumers alike. 

B2B electronic marketplaces (or “B2Bs,” for the purposes of this Staff Report) refers to

transactions that occur online through the support of the Internet.3 B2B electronic marketplaces,

therefore, are “a distinct system of suppliers, distributors, commerce services providers,

infrastructure providers and customers that use the Internet for communications and
4

 Baker & McKenzie (Stmt) 3, n.3. 

5

 Hereinafter, “goods” also includes “services.” 

6

 Attanasio 98. See also Stewart 63; Morgan Stanley Dean Witter (Stmt) 27-32. A

submission from the CPR Institute for Dispute Resolution stated that because “business disputes

are inevitable,” dispute resolution is as much a part of the corporate procurement process as

identifying needs and pricing. Henry (Stmt) 1. Therefore, it urges participants to use B2Bs also

as a mechanism for planning to manage disputes. Id.

7

 Bye (Stmt) 4-5.

8

 Kinney (Stmt) A-2 - A-3.

2

transactions.”

4

 Businesses typically engage in at least six “B2B” activities: they search, source,

specify, negotiate/bid, order, and receive goods and services5 that are needed in order to operate.6

At the most basic level, B2B e-marketplaces essentially take one or more of those standard

business processes and put them online. Eventually, businesses may be able to move other

business interactions, such as joint product design, online as well. 

B. Electronic Business Communication

B2Bs are the latest step in the long evolution of business communication practices. The

evolution of industrial purchasing has been one of constant, albeit sometimes uneven,

incorporation of new technologies. Those technologies include, but are not limited to, the

telephone, facsimile, various resource planning tools, electronic data interchange and, most

recently, the Internet.7 The Internet provides the next step in electronic communication, a step

that many consider to be a quantum leap. 

 

1. Legacy Systems

The term “legacy systems” is generally used to refer to the systems for automating

business-to-business commerce that preceded the Internet. It is helpful to understand them, both

because they represent one baseline from which the efficiency gains attributable to Internet

commerce may be measured, and because they are sometimes “back office” systems to which

companies want their B2Bs linked. For the most part, these systems facilitate various

communications about a firm’s input requirements. The advantages of automating input

requirements become clear when one considers that many companies do high volumes of business,

with products that use some common parts but also some unique parts and that each have varying

production lead times.8

One such legacy system, materials requirements planning (“MRP”) is a complex software

application that enables companies to more efficiently track what they need to purchase based on
9

 See, e.g., Kinney (Stmt) 4-5.

10

 Id. at A-1 - A-5. 

11

 Id. at 5, n.6.

12 Fromer 45-47.

13 Kinney (Stmt) A-4. 

14

 See infra at Part 1.A.2 (discussing EDI networks facilitated by the Internet).

3

their production schedules.9 MRP can be understood as “a manufacturer’s cookbook.” It

contains a “bill of materials” (“BOM”) that delineates which and how parts are needed to make

the product. The BOM not only stores that general information but also breaks it down into parts

and sub-assemblies. The MRP application integrates this information with information about

production schedules to generate a firm’s “shopping list.” The MRP can be run, and therefore a

new “shopping list” generated, as frequently as a business determines is necessary (e.g., daily,

weekly, etc.). 10 Enterprise resource planning (“ERP”) systems are more advanced forms of

MRPs, because in addition to managing the production of products, ERPs typically include human

resource administration and financial accounting components.11 For example, if a company’s

financial system is integrated with its purchasing systems through an ERP, then when a purchase

is made by a company employee, the finance department will be notified immediately.12 

MRP and ERP systems can assist businesses in reducing the amount of time parts are held

in inventory. Reducing this “lead-time” is often a central goal of businesses. Parts must arrive in

sufficient time to meet production schedules, but also in a manner that minimizes inventory. If

lead-time, and therefore inventory, could be reduced to zero, a business would be functioning on a

build-to-order basis.13 MRP and ERP systems can help businesses more accurately anticipate

their input needs and thus reduce inventory lead-time. Their primary shortcoming is that their

functioning is purely internal to the business which contains the system. 

Yet another legacy system, electronic data interchange (“EDI”) expands upon MRP and

ERP systems in that it permits buyers to convey their input needs directly to their suppliers. EDI

provides computerized documents through which businesses can exchange the considerable

information that business-to-business transactions require. Computerized transmission of input

requirements between businesses via EDI marked a tremendous advance and resulted in

considerable reduction in transaction costs for many participating firms.

While the ability of EDI to connect businesses is a valuable contribution, it comes at a very

high price. EDI systems were originally built to use private computer networks, called “value

added networks” (“VANS”).14 These private networks required a substantial capital outlay both

to implement and to maintain and, for that reason alone, many do not consider EDIs to be a
15

 E.g., Boeth (Stmt) 3. 

16 Harting (Stmt) 7. See also Fromer 48.

17

 Id. 

18 Fromer 37.

19

 See, e.g., First 526; Harting (Stmt) 2.

20 Teagarden 117-18.

21 Kinney (Stmt) 29.

22 Phillips 270. See also Tarkoff 19-20.

23 Harting (Stmt) 7.

4

“viable option for most businesses.”

15 Thus, although EDIs have been automating business-tobusiness transactions for more than a decade, primarily large firms have been the beneficiaries of

their savings.16

Even for those businesses that could afford EDI systems, the underlying reliance on

private networks resulted in significant constraints on the service that EDIs could provide. Some

concluded that such EDIs do not provide market transparency or allow for market growth.17 EDI

supports a series of bilateral relationships rather than multilateral, dynamic relationships. Both the

lack of transparency and market growth are largely attributable to the necessity of “establish[ing]

an individual connection with every business partner.”

18

 

2. Internet

The Internet makes B2Bs possible. It is an extremely efficient mechanism for the

exchange of information in light of its pervasiveness and the ease of connectivity.19 This type of

connectivity is possible due in large part to extensible mark-up language (“XML”), which is the

business-to-business e-commerce alphabet.20 Through the Internet, businesses with differing

MRP and ERP systems or computer hardware can access the universal browser without complex

installations.21 Small businesses unable to independently develop a viable e-commerce strategy

could use B2Bs to “leverage a public infrastructure from someone else” to achieve its ecommerce goals.22 In sum, “[t]he rapid and transformative growth of [B2B e-marketplaces] is

attributable to the widespread adoption of the Internet, combined with new trading software and

lower computing costs.”

23

 

Internet technology affords sharing of “an unprecedented level of information about the

complete activities of the customers in the marketplace” among sellers and buyers that participate
24 Mirek 188.

25 OESA (Stmt) 3.

26

 See, e.g., Sullivan 252 (A “compelling reason” to join a B2B is to “leverag[e] the web

technologies and ERP technologies out there to integrate into their back ends and improve their

bottom lines”); Mirek 145 (Important to participation in B2Bs is their ability to provide

“increased operational efficiencies, such as back-office integration.”) 

27 Kinney (Stmt) 5 & n.7. 

28 Morgan Stanley Dean Witter (Stmt) 81. 

29 Guerin-Calvert 433-34.

5

in any given B2B electronic marketplace.24 Each transaction on the Internet can be tracked in

great detail. Participants in any B2B can know, among other things, the identities of the

purchaser and seller, the quantity purchased, the date and time of the transaction, and the number

of times the specific purchaser looked at the product before making her decision.25 

B2Bs can operate in conjunction with legacy systems. The integration of B2Bs with

“back-offices” or “back ends” refers to linking the new technology with legacy systems so as to

continue reaping, and expanding upon, the benefits of the earlier systems.26 What this means as a

practical matter is that the B2B can receive the information as it has been assembled by the legacy

systems rather than necessitating separate completion of extensive B2B order screens, or vice

versa.27 For example, if a B2B and a company’s legacy system are integrated, and the B2B sends

e-mails to the company regarding orders, the company will not have to “re-key” that information

into its legacy system in order to process and fulfill it.28

And, in some cases, firms may not join B2Bs, but instead may use the Internet as a tool to

improve existing proprietary networks. For example, with regard to EDI, it was noted that

proprietary networks (facilitated by the Internet) will continue “where an individual manufacturer

or purchaser continues to want to have its own vertical relationship with a host of suppliers as

compared to [participation in a B2B].”

29 Even without EDI, a firm may consider whether it needs

B2B participation to achieve desired cost savings, or whether it can achieve the same types of

results by using the Internet to facilitate its own private network through which it maintains buysell relationships with suppliers and customers. 

C. B2Bs

Markets can assume as many forms online as they do offline. Each form may make more

or less business sense depending on a multitude of factors, including the types of goods involved
30 Clark 363-64 (noting that generalizations across industries are difficult because

different facts are typically implicated).

31 Steve Kaplan and Mohanbir Sawhney, E-Hubs: The New B2B Marketplaces, Harv.

Bus. Rev., May-June 2000, at 98.

32

 Id. at 98. See also Knight 250. Knight further subdivides MRO into white collar and

blue collar. The former refers to indirect goods used in offices (e.g., paper clips), the latter refers

to indirect goods used in factories (e.g., gloves, valves). 

33 Kinney (Stmt) 12.

34

 Id. 

35

 See, e.g., Kinney (Stmt) 8; Gray 160 (noting that among retailers approximately 25% is

MRO-type spend and 70% tends to be spend for more complex goods).

6

and the nature of the industry. Below is a brief survey of some important dimensions of B2Bs.30

 

1. Direct and Indirect Inputs 

All of the goods purchased and sold in business-to-business commerce fall into one of two

general categories – direct or indirect inputs. Direct inputs, or manufacturing inputs, are raw

materials or components that will be used directly in the manufacturing process.31 These materials

will be used in the buyer’s final product or will be sold by a retailer. Examples of these would

include the highly-engineered parts that a firm installs into the machinery it manufactures and the

different chemicals that businesses may use for purposes as diverse as creating drugs or treating

wood products. By contrast, indirect inputs, also known as operating inputs, are used for

maintenance, repair, or operation (“MRO”) and do not become part of the finished product.32

Examples of these would include items such as paper clips and janitorial services. 

Direct inputs generally account for fewer transactions than do indirect purchases, but the

dollar value of each transaction involving a direct good tends to be greater.33 Moreover, direct

material purchasing tends to be a specialized function, whereas the purchasing of indirect

materials may be fairly widespread within an organization.34 Manufacturing firms and retailers

typically devote a relatively higher proportion of their spending to direct material than do other

types of firms, such as financial service firms, which typically devote more of their spending to

indirect materials.35 Whether a purchase involves direct or indirect materials may have

implications for the type of B2B solution that fits best. 

2. Horizontal or Vertical Organization

B2Bs are often categorized as “horizontal” or “vertical.” “Horizontal” or “vertical”
36 Kinney (Stmt) 20.

37 Additional organizational structures for marketplaces include “diagonal” marketplaces,

which “support a specific type of buyer or a specific type of product category across multiple

industries.” Baker & McKenzie (Stmt) 5. For example, a diagonal marketplace might support the

“purchase and sale of electricity, natural gas, and liquefied fuels in Latin American markets.” Id. 

“Regional horizontal” marketplaces “serve[] a community’s businesses and non-profit institutions

of all kinds and sizes, capitalizing on local cohesiveness.” Such a marketplace would focus on

industries with an inherently regional focus and build upon their “standing in the community to

create a marketplace that serves the unique needs of a wide range of regionally or locally focused

entities . . . regardless of industry.” energyLeader.com (Stmt) 6. Regional procurement markets

could, for example, serve regionally focused entities such as utilities, hospitals, and universities. 

Id. 

38 Regardless of the specific mechanism for establishing price, transactions usually assume

one of two forms: those made through short-term and long-term contracts. The former, also

called a “spot market,” encompasses ad hoc purchases such as those made to meet unanticipated

needs. Lucking-Reiley 453. See also Dupont 267-68.

7

organization refers, respectively, to whether the marketplace serves many different industries or a

single industry. If the marketplace’s “product focus” is not necessarily specialized in any one

category but has considerable breadth, then it is usually considered a horizontal marketplace.36 If

the marketplace provides product expertise and in-depth content knowledge for an industry,

reflecting an “orientation along many steps in the supply chain of one product category,” then it is

said to be organized vertically.37 

Given the variety of their offerings, horizontal markets are often well-suited to sell indirect

inputs or MROs, items that tend not to be industry specific. Vertical markets, by contrast, are

well-suited to sell direct goods that are incorporated into the final product or offered for resale –

items that tend to be industry specific. These categories are, however, by no means hard and fast. 

There are always exceptions. Among the early entrants to the B2B economy was a horizontal

marketplace that specializes in conducting reverse auctions that often involve the sale of highlyengineered direct inputs. And vertical marketplaces may offer indirect, as well as direct goods, to

the industry served. 

 3. Mechanisms for Establishing Prices of Purchases and Sales

 

B2B e-marketplaces may offer one or more of several possible price determination

mechanisms, with countless variations. This report will briefly address four: catalogs, auctions,

exchanges, and negotiations.38 The first, catalogs, is typically a fixed price mechanism; the

remainder usually involve dynamic pricing. Through electronic B2Bs, each of these mechanisms

may enhance the price transparency of the marketplace. The implications of increased price

transparency for efficiencies will be addressed in Part 2, and its implications for antitrust concerns
39 Morgan Stanley Dean Witter (The B2B Internet Report: Collaborative Commerce,

April 2000) 315. See also Zaad (23-24) (characterizing the fact that a single B2B catalog may

contain the catalog items from many suppliers as the “essence” of the entire system). 

40 Kinney 29. 

41 Morgan Stanley Dean Witter (Stmt) 30 (“Moving the catalog online makes it dynamic;

suppliers don’t have to wait for the next printing of a paper catalog to change products and

prices.”). But see OESA (Stmt) 7 ("If the procedures required to add a new product [to a

uniform product catalogue used in a B2B] are sufficiently onerous, participants would be unlikely

to invest in developing new products because there would effectively be no market for them.").

42 Kim 154-55.

43 Sullivan 252.

44 Stewart 55 (noting that metal is a “highly attribute-based product” that has to be

defined and described), 66.

8

will be addressed in Part 3. 

a. Catalog

Some B2Bs use catalog aggregators, or “metacatalogs,” to normalize, or standardize,

product data from multiple vendors so that buyers can easily compare it.39 The Internet allows

catalogs to present extensive product information to an extent never before readily available,

including multimedia content such as photographs and videos.40 Once online, the pricing in

catalogs can be revised with relative ease.41 

For example, equalFooting standardizes and aggregates the data of a half dozen of the top

MRO distributors, as well as others such as office supplies distributors.42 Another B2B,

HotOfftheWire, provides a catalog of consumer goods targeted to small and midsize retail

stores.43 MetalSite, a B2B serving the metals industry, contains catalog purchasing as an option,

although MetalSite’s founder characterized the purchasing requirements of the metals industry as

not being entirely amenable to presentation through catalog.44

Purchases using a B2B electronic catalog often follow the following steps, examining in

sequential order: 

“(i) a home page, allowing the buyer to choose from any of the following: the

placement of a new order; tracking of an existing order; view of order history; and

view detailed information of an order.

(ii) the product catalog, where the buyer may search, for example, by
45 Baker & McKenzie (Stmt) 4-5. During the workshop, two demonstrations were given

of catalog purchasing on a B2B e-marketplace. See Zaad (21-32); Fromer (42-47). 

46 Phillips 300. See also Verloop 380 (discussing catalog system with “active pricing”

whereby seller can dictate who sees the pricing); Haines 379 (buyer can either select a “fairly

broad view or the universal view of the catalog” which would permit comparative pricing or

“filter” their view to something more narrow such as a brand-specific view); Stojka 381 (“private

catalogs and private auctions are really what buyers and sellers want”).

47 Baker & McKenzie (Stmt) 4-5. See also Kinney (Stmt) 9. But see Morgan Stanley

Dean Witter (Stmt) 88 (noting that in much the same way prices can be customized, it is possible

that customized products – which are typically direct goods – may become custom lines in

catalogs).

48 Morgan Stanley Dean Witter (Stmt) 28.

49

 See, e.g., Morgan Stanley Dean Witter (Stmt) 28; Lucking-Reiley 437.

50

 See, e.g., Arnold 151; Knight 250; Harting (Stmt) 17.

9

manufacturer, name, product category and end-use category.

(iii) a page showing the results of the buyer’s search, including quantities and

[prices; the buyer can then select the specific goods to be purchased] . . . 

(iv) a ‘shopping cart’, displaying selected products, and allowing the buyer to

modify quantities, shipment address, and billing location, and to delete the order.

(v) a price quote page, indicating the prices and shipping charges for the products

in the ‘shopping cart.’

(vi) confirmation of order.”

45

Workshop participants also pointed out that sellers can customize price lists to reflect

agreements reached with specific buyers but ensure that those prices can be viewed only by the

intended buyers. As one panelist said, negotiated prices are frequently viewed as a form of

proprietary information. A buyer and seller may want to retain what is essentially a private

relationship even though they have moved the relationship to a public infrastructure.46

The catalog as a pricing mechanism appears to be “[p]articularly appropriate for the sale

of low-priced items bought frequently in small quantities.”

47 That is because these items are “too

low-priced to justify negotiation.”

48 Thus, though the prices may be customized, they are usually

fixed.49 This is consistent with the fact that many of the workshop participants discussed their

experiences with catalogs within the context of MROs.50 There are no hard and fast divisions,

however. One panelist discussed how companies had used auctions to establish the prices for

indirect materials, which were then placed in catalogs for the specific buyer at the auction-
51 Kinney 162.

52

 Id. An English auction is distinguishable from either a Dutch or Japanese auction. A

Dutch auction involves “one seller and many buyers in which the auctioneer reduces the price

(from a high starting point) until a bidder agrees to buy at that price.” Morgan Stanley Dean

Witter (The B2B Internet Report: Collaborative Commerce, April 2000) 315. In a Japanese

auction, which also involves one seller and many buyers, the “auctioneer raises the price (from a

low starting point) and buyers must bid at each price to stay in the auction.” Id. 

53

 Id. at 8. During the workshop, three demonstrations of reverse auction were given. 

See generally Kinney 81-91. 

54 Kinney 79. 

55

 Id. at 80.

56

 Id. at 84.

57 Baker & McKenzie (Stmt) 7.

10

determined prices.51 

b. Auction

The various forms auctions can assume in the offline economy are being transplanted to

the online economy. A forward auction, also known as a forward English auction, "let[s] multiple

buyers bid competitively for products from individual suppliers.”

52 Forward auctions are sellerdriven auctions, with prices moving up as a result of bidding among the buyers. 

A reverse English auction is a buyer-driven auction that lets multiple sellers bid

competitively to provide product to individual buyers. Prices move down.53 Preparation for a

reverse auction usually takes the form of a buyer issuing a “request for quotation” in which

product specifications and commercial terms are presented.54 The buyer identifies which sellers it

wants to participate in the auction. Within the context of direct inputs, depending on the

importance of the seller’s product as an input to the buyer’s ultimate finished product, such

prequalification may take on particular significance.55 Suppliers prepare their bids and submit

them during the auction itself, with the option to move their prices down as bidding proceeds. A

reverse auction may be organized such that the lowest bid does not automatically win. A buyer

may award the contract to a bidder quoting a higher price if the difference is worth it because of

quality, location, or other such considerations.56 

Auctions are “[p]articularly appropriate for items that are unique and differentiated but

simple to describe and understand.”

57 The good in question and the structure of the marketplace

will invariably influence what form the auction should take. One critical question is what
58 Kinney 82. 

59

 Id. at 88-90. 

60

 Id. at 90.

61 Baker & McKenzie (Stmt) 7.

62 Harting (Stmt) 16-17.

63 Allgaier 142.

64 Mirek 140-41.

11

information is to be shared, among whom, and for what purpose. For example, the format of

different reverse auctions demonstrated during the workshop varied depending upon market

concentration in the supply market. In a relatively unconcentrated market, the bidders could see

the bids (which were labeled by aliases rather than business name).58 In a more highly

concentrated industry, the auction was conducted according to a rank bidding format.59 The

bidders could not see the current price being bid; instead, each could see its own bid and its rank. 

This was done to “limit the amount of feedback to prevent suppliers from learning enough to

signal each other in the future.”

60

c. Exchange

An exchange is a "two-sided marketplace where buyers and suppliers negotiate prices,

usually with a bid and ask system, and where prices move both up and down."61 B2B exchanges

are typified by anonymous, real-time matching of orders and quotes comparable to that which

occurs on a traditional securities exchange. This pricing mechanism is ideal for commodities or

commodity-like products. Such highly standardized products are traded constantly and may

experience extreme volatility.62 One workshop participant characterized B2B exchanges as no

different than trading through “pits with the open outcry” such as the Chicago Board of Trade,

except that “you do it over the electronic network.”

63 An example of such an exchange is

Currenex, a currency exchange that links banks and corporations.64 

d. Negotiations

Negotiation refers to any number of arrangements, such as Requests for Proposals,

whereby the B2B consolidates and compares information regarding specific requests, followed by

negotiations between the potential participants to the transaction. 

The process that Requests for Proposals frequently take is:

“(i) seller posts a profile or proposal.
65 Baker & McKenzie (Stmt) 6.

66 Harting (Stmt) 8. 

67

 Id.

68

 See, e.g., Mirek 172; IPPN (Stmt) 1; Kim 197-98.

69 Mirek 190. 

70

 See, e.g., Gray 204; Walsh 366-67; Strojka 364-65. 

71 Clark 362.

12

(ii) buyer searches by requirements, and is shown all sellers with posted profiles or

proposals meeting those requirements.

(iii) buyer chooses a seller, and advises that seller of its requirements.

(iv) seller, if interested, then responds to that buyer, and seller and buyer negotiate

directly with each other.”

65

 

4. Ownership and Control 

As with most other aspects of B2B marketplaces, a review of current ownership structures

reveals both that they defy easy categorization and that they are continuing to evolve. On the

most basic level, distinctions are typically drawn between ownership by industry participants, that

is, the companies that plan to use the B2Bs, and ownership by non-industry participants, such as

venture capitalists or technology firms. Within the context of industry participant ownership,

further distinctions are drawn between whether it is a buyer-participant or seller-participant. 

Types of contributions each of these groups can make are relatively clear: buyers and sellers

contribute liquidity, venture capitalists contribute funding, and technology firms contribute

functionality.66 

Ownership by non-industry participants or third-parties characterized many of the first

entrants into B2B e-marketplaces.67 Such marketplaces are sometimes referred to as

“independent,” though that appellation is itself the source of considerable debate. Several

panelists strongly endorsed this third-party model as being essential to providing a fair and neutral

marketplace.68 For example, one panelist asserted that a third-party has “a natural incentive to

maximize the profitability of the exchange, which means satisfying both the demand and supply

side requirements.”

69 Other workshop participants rejected that premise, insisting instead that any

marketplace has the incentive to act fairly and neutrally, since that is the best way to encourage

broad participation in the marketplace.70 

At the other end of the spectrum from third-party B2Bs are consortium B2Bs. Such B2B

marketplaces, also termed coalition markets,71 are founded and owned (at least in part) by
72

 See, e.g., van Breen 191, 207; Spradlin 316-17; Gray 208.

73

 See, e.g., Brodley 575-76 (described the argument that B2Bs require groups with

market power, especially as it pertains to raising capital, as not being “very convincing”); Kinney

211-12 (questioned, “Why do you need to be working in an exchange that’s . . . explicitly coowned with you and some of your horizontal competitors in order to do what you’ve been able to

privately for years?”). See also Foer (Stmt) 1 (characterizing the motivation behind established

companies to create consortium B2Bs as “reduc[ing] or eliminat[ing] the possibility that their

industry will be served online by independent start-up[s]”).

74

 See, e.g., Spradlin 314-15.

75 Haines 349-50. (Buyer-participants hold equity in FacilityPro, but FacilityPro has

turned down sellers who wish to buy equity in it. While she believes that active participation of

both buyers and sellers is “one of the characteristics of a successful marketplace,” she also

believes that “it would be difficult to have equity participation on both sides.” Id.)

76 VerticalNet’s paintandcoatings.com is a joint venture with Eastman Chemical Co.

where Eastman (Walsh 352) also acts as a supplier on the B2B. See www.paintand

coatings.com/content/homepage/default.asp (last visited October 18, 2000).

77

 See, e.g., Roberts 355-56.

78 Verloop 345-46 (noting, however, that “[t]hat’s not to say in the future that

[BuyProduce] won’t come up with some type of a [participant-owner] model”).

13

industry-participants; they most often are either buyer-led or supplier-led but may include both

buyers and sellers. Some argue that such ownership interests are essential for the success of a

B2B. According to that argument, ownership by industry participants is essential both because

they can support, financially and otherwise, development of the infrastructure, software,

databases, and functionality that e-marketplaces require, and because their involvement

guarantees that they will use the B2B for a sufficient volume of transactions to ensure the B2B’s

liquidity.72 Such arguments were questioned.73

Falling between these two extremes are any number of ownership structures.74 For

example, some B2B marketplaces are owned in part by buyer-participants.75 Still others are

owned in part by seller-participants.76 Some B2Bs have ownership by both buyer and sellerparticipants.77 Some B2Bs recognize the possibility that their policy regarding equity holders

could change. For example, BuyProduce has turned down requests from industry participants to

hold equity.78

A concept closely related to ownership is that of control. Control, whether understood in

terms of board membership or operational, day-to-day management, is typically related to

ownership. However, some B2Bs are adopting strategies that separate control from ownership to
79 Gray 361.

80

 See, e.g., energyLeader (Stmt) 7-8; Harting (Stmt) 19-20; Morgan Stanley Dean Witter 

(Stmt) 40-1. 

81 Harting (Stmt) 4.

82 Verloop 420-21.

83 Clark 419-20.

14

some degree. For example, one consortium B2B is creating its management team “from mostly

companies who are not part of those ownership companies.”

79

 

5. Revenue 

B2Bs may compensate owners and operators, and potentially even participants, from a

variety of sources, including transaction-related fees, membership fees, service fees, advertising

and marketing fees, and fees for data or information. Moreover, many predicted that a B2B’s

reliance on any particular revenue source may change as the B2B market matures.80

a. Transaction-Related Fees

Transaction-related fees, or trading fees, may be charged per transaction, as a flat fee for a

set number of transactions, on the basis of transaction value, or as a percentage of savings

resulting from the trade. Whether the buyer or the seller is likely to pay the fees depends on the

circumstances. Likewise, the size of the fee may vary among industries. “The most frequently

traded and highly standardized goods, such as energy and petrochemcials, are associated with the

lowest transaction fees.”

81

One panelist noted that although transaction fees are currently the major source of revenue

for his B2B, these fees will likely disappear: “Transaction fees will become like email, it will be

free eventually.”

82 Another participant agreed that, as B2B marketplaces become more

competitive, the competition will push transaction-related fees “towards zero.”

83

b. Membership Fees

Membership fees, or subscription fees, are typically paid up front or at certain intervals

(e.g. annually) to participate on a marketplace. A membership fee may function as a type of sunk

cost and, as such, may have implications for switching costs. 
84 Harting (Stmt) 9-10.

85

 See, e.g., Harting (Stmt) 4; Verloop 420.

86 Baker & McKenzie (Stmt) 13. Opt-in e-mail marketing refers to “sending e-mail

messages to those who have opted to receive them.” Id. One panelist noted that her customers,

small businesses, are extremely concerned about online privacy. Buyers on her B2Bs do not want

to be deluged with junk mail from suppliers who received information about the buyer from the

exchange. Kim 182. Another panelist, also characterizing this as a consumer privacy issue, noted

that “in a lot of respects it would be nice to get more targeted advertisements.” Knoll 182. 

87 Walsh 421-22.

88 Baker & McKenzie (Stmt) 13. 

15

c. Service Fees

 Service fees are fees for additional functionality that B2Bs may offer either directly or

indirectly. Value-added services that B2Bs are offering include logistics (e.g. shipping services);

systems integration (e.g. coordinating legacy systems with B2Bs); financial services (e.g. credit

assessments); and industry information (e.g. identification of new products and services, various

trade-industry events, links to useful sites, news feeds pertaining to the industry, chat rooms).84

B2Bs may provide value-added services themselves, or may receive a portion of the fee collected

by third parties that the B2B permits to supply services through its e-marketplace. Several

panelists asserted that service fees for value-added services will dominate over membership and

transaction fees as the primary source of significant revenue.85

d. Advertising and Marketing Fees

Advertising on B2Bs can take many forms including “banner advertising” or “opt-in e-mail

marketing.”

86 The value of such advertising stems from the ability to target key purchasing

decision-makers. B2Bs, like trade publishing, trade shows, and trade conferences, represent a 

means to achieve such targeted marketing. As one panelist explained, “there are really only

about 100,000 buyers and [suppliers] in the pollution control business domestically, for instance,

and we get about 30 to 60 percent of them in a given month to come multiple times to our site to

get information, [so] we sell access to those eyeballs . . . [T]here are very robust revenue streams

in advertising and promotion.”

87 A related revenue source is “listing (or hosting) fees,” which

suppliers typically pay “to have a storefront” (a separate, supplier-specific segment) within a given

marketplace.88
89 Morgan Stanley Dean Witter (Stmt) 101.

90

 Id. 

91 Gray 230. 

92

 Id. at 229-30.

93

 Id. 

94 Clark 402.

95

 Id. See also, Morgan Stanley Dean Witter (Stmt) 101.

96 Clark 401-02.

16

e. Data or Information Sales

The accumulation of composite transaction or other market data by B2Bs was viewed as

having tremendous value. Historically, such data typically would only have been available

through sources such as vendors, competitors,89 or middlemen. Now, if a B2B had adequate

liquidity, it could accumulate detailed data regarding many aspects of particular chains of

commerce. In theory, the data might be sold in aggregate form.90 As one panelist noted, the

information gathered a the B2B in the course of transacting millions of transactions may yield 

“overall statistics” that could be extremely valuable.91 As an example, he noted that pipe mills

“make or break themselves by knowing when to run their mill.”

92 If there were an annual auction

for blocks of mill space, and if that information were accumulated over time, it would be of

immense value to buyers and suppliers of mill space, as well as potential third parties seeking to

offer additional services, because each of those entities could plan its activities more efficiently.93

Another example involved a B2B functioning as an intermediary between chain restaurants

and food distributors; the B2B takes orders from the restaurants and then “shoot[s] them out to

the right distributors.”

94 The B2B is then positioned to determine different buyers’ preferences,

repackage that information (which necessarily involves aggregation), and sell it to the food

manufacturers. The manufacturers then have better information on how to improve their

products.95 One specific example of current data sales involves European flower markets. A B2B

accumulates sales price data for each flower on a daily basis and sells that information to a wire

service, which makes it available internationally.96 

Despite reservations about sharing individual transaction data, many buyers suggested that

they would share aggregate data among various buyers. For example, Petrocosm offers aggregate

buyer information to other buyers only if the contractual relationship between the participant and
97 Gray 400.

98 Haines 380.

99 energyLeader (Stmt) 11.

100 Chen 235-36.

101

 Id. at 236.

102 Mirek 234-35.

103 Gray 204.

104 Gray 383.

105 Practices vary. See, e.g., Stojka 381-83 (in Commerx, in which strategic investors are

limited to one percent ownership interests, detailed information may be available to management

and board members, but an unwritten rule prevents the information from flowing to participantowners); Gray 361-62 (in Petrocosm, an industry-owned consortium marketplace, the board and

17

marketplace allows the sharing of aggregated data.97 Likewise, information about buyers is

aggregated and shared among buyers at FacilityPro.com.98 In the B2B electronic marketplaces

designed by energyLeader.com, “data may . . . be aggregated by marketplace personnel in a

manner that does not reveal any one buyer’s activities, e.g., for purposes of negotiating volume

discounts.”

99

 

One panelist noted that companies consider “their transactional record[s] as part of their

trade secrets, as part of their proprietary intellectual property.”

100 Accordingly, it is necessary for

B2Bs to address whether they are “custodians” of the data or “owners” of the data.101

6. Access to Information

Information on specific and aggregate transactions, supplier prices, buyer purchases, and

other confidential or proprietary information could potentially be accessed by a B2B’s

participants, owners, management team, employees, or board of directors. Many workshop

panelists suggested that each marketplace handles issues of information sharing differently, and

that typically either the board of directors or management decides how to use this information.102 

Other panelists observed that a marketplace’s operating rules may control how information is

used,103 or the contractual arrangement that each participant has with the marketplace may govern

the confidentiality of transaction data or other proprietary information.104 Thus, whether

participants, owners, management, employees, or the board of directors has access to confidential

or proprietary information depends on the B2B marketplace’s rules on how information is shared

or secured.105 
management will not have access to participants’ proprietary information); Roberts 384

(announcing plans to bar M-Xchange’s board of directors from receiving proprietary information

from the exchange).

106 Mirek 188.

107

 Id. at 199-200.

108 Shridharani 185; see also Mirek 188.

109 Currenex (Stmt) 2.

110

 See, e.g., Walsh 385-86 (If a particular B2B marketplace allows too much information

to be shared and “unduly harms the buyer, or if . . . the buyers share too much information and

unduly hammer down the prices of the seller,” the problem will self-correct at the “Internet’s

speed,” much faster than the problems in “real world” economies that take “years and sometimes

decades to correct.”); Verloop 393 (the Internet punishes a B2B “doing unfair pricing practices”

faster, making for “a self-correcting marketplace overnight rather than having to wait a couple of

months”); energyLeader (Stmt) 10 (“The B2B world is an increasingly competitive one in which

credibility is important, and in which news of unfair practices will travel quickly, with devastating

consequences to the practitioner.”). 

111 Foer 566 (conflicting information regarding whether self-correction is unusually rapid

and can be counted upon). See also Ernst & Young (Stmt) 1-2 (based on its understanding of

B2B participant concerns, advocating adoption of comprehensive public standards regarding the

18

Some panelists suggested that whether a marketplace’s owners or managers should access

buyer and supplier transaction data would depend upon who owned the marketplace. For

example, in theory, seller owners and managers could receive an “unprecedented level of

information about the complete activities of the customers in the marketplace” – whether the

seller participates in a given transaction or not.106 These owners could have an “unprecedented

ability to monitor prices in realtime” – they would know each other’s bids and prices instantly.107

One of the dangers that could arise from a marketplace led by a coalition of sellers would be for

the owners to "frontrun" the market, i.e., discover buyers’ confidential needs and raise the price

accordingly. For example, if a B2B allowed sellers to know that a buyer will need “a certain large

barge of chemicals within one week . . . instantly the prices of that chemical will go up 25 to 30

percent.”

108 This could occur if the sellers were to have access to real-time and macro-level

information (e.g., customer trading patterns, pricing or demand trends) that provided them with

extensive information regarding each other's pricing.109 

With respect to sharing information among B2B participants, some workshop panelists

suggested that if participants become concerned that too much information is shared, the market

will quickly self-correct.110 Others were more skeptical regarding the prospects for selfcorrection.111
control of competitive information within B2Bs). 

112

 See, e.g., Gray 412; Jasinowski 556; Rule 561-62.

113 Morgan Stanley Dean Witter (Stmt) 17.

114

 See, e.g., Shridharani 214 (economies of scale and network effects drive

consolidation). 

115

 Compare Harting 415 (suggesting there will be two B2B electronic marketplaces

within each relevant product market and relevant geographic market) with Gray 414 (suggesting

the number would be five).

116 Shridharani 214.

117 Gray 213.

118 Kinney 209.

119 Harting (Stmt) 21.

19

7. Barriers to Entry, Network Effects, and Intellectual Property Issues

Many workshop panelists noted that B2B electronic marketplaces are proliferating now at

a rapid pace.112 One industry analyst expects to see 2,000 marketplaces by the end of 2000 and

5,000 by the end of 2002.113 This rapid pace, however is not expected to last, as the industry

moves into a phase in which various B2B electronic marketplaces will consolidate and

differentiate.114 Industry analysts offered varying opinions as to how far consolidation would

ultimately reach.115

Other workshop panelists predicted that although marketplaces eventually will

consolidate, there will be many segments and tiers within any specific industry,116 and that there

will be many niche players within each industry.117 Moreover, if there is interoperability among

marketplaces so that buyers and sellers conduct transactions not only within any one B2B but

across multiple B2Bs (also known as exchange-to-exchange commerce), there is a possibility that

there will be specialists competing for business from a number of marketplaces.118

The course of development will be greatly affected by the extent of entry barriers into the

market for B2B marketplaces. One workshop panelist stated that B2B electronic marketplaces

are proliferating now because barriers to entry are low, thus enabling multiple marketplaces to

emerge.119 Another suggested that if a start-up B2B offers only limited functionality, such as

catalog purchasing or auction capabilities, it does not take much transaction volume or liquidity
120 Gray 413.

121 Morgan Stanley Dean Witter (Stmt) 41, 74, 77.

122

 See, e.g., Mashinsky 294 (marketplaces want as many buyers as possible); Gray 208

(transaction volume (or “spend”) of $10 billion is necessary to pay for the creation of the

infrastructure); Kinney 209 (a breakeven transaction volume of $6 billion may be possible).

123 van Breen 191.

124

 See, e.g., Dupont 317, Gray 344 (“To accomplish getting more volume through the

system, you have to have more participants.”).

125 Arnold 220. 

126 Parker 431-32; Glover 445.

127 Network externalities, or network effects, are present to “[w]hen the value of a

product to one user depends on how many other users there are.” Carl Shapiro & Hal R. Varian,

Information Rules (Harv. Bus. Sch. 1999) 13.

20

for that marketplace to become competitive.120 And one commentator noted that start-up costs

for B2Bs with “basic functions” are falling as more standardized software becomes available, and

that outsourcing infrastructure to a technology provider can make it possible to “get up and

running fairly quickly” because barriers to entry are low.121 

On the other hand, testimony by a number of panelists suggested that barriers to entry are

getting higher as additional B2B electronic marketplaces become operational and begin to offer

more complex services. Many of the workshop panelists emphasized that the most important

requisite for the survival of a B2B marketplace is to have sufficient transaction volume.122

Transaction volume – or liquidity – is necessary for the marketplace to cover its operating and

developmental costs,123 and it is best accomplished by attracting additional participants to the

marketplace.124 In addition, volume or liquidity drives down transaction costs, which then attracts

additional participants.125 And once the marketplaces have volume, panelists predicted, they will

begin to compete on the basis of additional supply chain services.126

Moreover, many panelists suggested that the development of multiple marketplaces

serving any one industry will be affected by the nature and magnitude of network effects 127 in

each particular industry. One panelist observed that in B2B marketplaces, network effects are

present where the more buyers there are in a particular marketplace, the more likely any given

seller will be able to find a buyer and get a good price, and likewise for buyers being able to
128 Sunder 427. See also Rule 559 (network effects are present in that information

provided by these marketplaces will be more valuable and accurate with a larger number of buyers

and sellers); Guerin-Calvert 433; energyLeader (Stmt) 12-13 (“The attractiveness of the

marketplace to the seller is often a function of the extent to which the marketplace is used by the

seller’s major buyers. . . . Sellers who wish to continue their relationships with these buyers will

want to participate in the marketplace.”).

129 Clark 363. Nonetheless consortium B2B marketplaces could fail if long-time

competitors find it difficult to work together. Id.; see also Heymann 368-69.

130

 See, e.g., Krattenmaker 578; cf. Foy (Stmt) 2-6.

131 Krattenmaker 546.

132 Kafka 222-23 (equity gives incentive to use the exchange and thereby generate critical

mass); Gray 225 (giving equity one way to drive for liquidity).

133 Stewart 70.

134 Kafka 219.

21

purchase necessary goods and services with more sellers in the marketplace.128 To the extent that

network effects create significant advantages for large incumbent B2Bs, entry could be impeded. 

One commentator observed that independent B2Bs are finding it harder to locate 

necessary capital when an industry consortium forms a B2B aimed at the same market the

independent B2B plans to serve. Suppliers of venture capital tend to assume that the industry

coalition model will capture the liquidity necessary for a successful marketplace.129 In addition,

some panelists indicated that antitrust laws that vary from country to country can amount to an

entry barrier for B2B marketplaces, which conduct business without respect to national

boundaries.130

a. Incentives Used to Attract and Retain Volume

One panelist suggested that industry ownership provides both economies of scale and

economies of know how and information,131 and workshop panelists observed more generally that

many marketplaces have offered equity investments to leading buyers or suppliers to generate

critical mass in a marketplace.132 Indeed, the CEO of Metalsite suggested that having industry

ownership is one of the reasons why the marketplace is still operational.133 The equity can be

offered in exchange for market participants’ commitment to provide a certain level of volume.134

Others workshop panelists asserted that offering equity to marketplace participants appears to

occur in markets that are concentrated with fewer buyers and sellers, rather than in markets that
135 Shridharani 224 (equity seeds liquidity in a concentrated market, not so much if a

fragmented market); Harting 348 (big buyers and sellers get equity in order to induce liquidity in

concentrated markets).

136

 See, e.g., Gray 225, energyLeader (Stmt) 12 (“energyLeader.com may offer incentives

to encourage entities to bring a large volume of transactions to the market.”).

137 Kinney 220-21 (price based on a “blanket dollar commitment”); Foer (Stmt) 2. 

138 Kafka 195; Walsh 366 (Sabre system provides an example of information presentation

issue).

139 Harting 372.

140

 See, e.g., Simkins 409-10 (contractual provisions or other exclusivity practices may be

used that limit participants' flexibility and prevent them from "go[ing] where their best economic

judgment dictates that they should go").

141 Perlman 567-68. 

142

 See, e.g., Cooper 571. 

22

are fragmented and in which there are more buyers and sellers.135

In addition to equity, other workshop panelists suggested that other ways to entice volume

to a marketplace are to provide volume discounts to incentivize buyers and suppliers to use a

marketplace,136 to establish rebates or revenue-sharing devices in return for commitments to

achieve certain volume levels,137 or to present information that highlights a particular marketplace

participant.138 On this last point, one workshop participant disagreed and suggested that

information presentation does not account for much given the transparent and self-correcting

nature of these marketplaces.139

b. Requirements Used to Obtain and Retain Volume

Several workshop panelists suggested that “contractual coercion” might be used to require

market participants to participate in a certain marketplace.140 For example, one workshop

participant suggested that some marketplaces are prohibiting their investors from making equity

investments in or forming other B2B marketplaces, although such marketplaces are not

prohibiting the investors from buying through other marketplaces.141 Others suggested that

minimum volume commitments or minimum percentage requirements could be used.142

Other panelists suggested that “benign coercion” was being used to “encourage”
143

 See, e.g., Knoll 281 (“benign coercion” used by customers to force sellers to

participate in a marketplace); OESA (Stmt) 6 (buyers could force not just suppliers, but suppliers’

suppliers, to join a marketplace).

144 Shridharani 215-16.

145 Mashinsky 294 (Arbinet does not require exclusivity, if exchange offers good value,

exclusivity not needed); Dupont 302 (exclusivity is not required); and Loevy 304 (exclusivity is

rare).

146 Allgaier 217-18 (participants want to use different exchanges for different purposes or

purchases); Kafka 219.

147 Sullivan 298.

148 Kinney 220-21 (minimum commitments have been small in percentage terms);

Shridharani 224 (exclusivity used for small portions for given periods; not a major issue); Perlman

568. 

149 Attansio 109. 

150

 Id. at 110. 

23

participation in various marketplaces.143 Indeed, one panelist stated that the pressure on buyers

and sellers to participate in marketplaces when large players have affiliated on the other side of

the transaction contained an “element . . . of intimidation.”

144

On the other hand, some panelists suggested that it is unnecessary to use or require

exclusivity to attract volume and that exclusivity is not required in many marketplaces.145 Others

suggested that many buyers want to use more than one marketplace,146 and that exclusivity is not

imposed on sellers because buyers want a choice of brands in a fragmented market.147 In addition,

some panelists suggested that exclusivity is used only for small portions of volume or for a limited

period of time.148

c. Intellectual Property Issues

Several panelists indicated that the development of multiple B2Bs serving any one industry

could also be affected by how intellectual property issues are handled. For example, the same

transparency that enables a company to sell its product faster could possibly enable a competitor

to “understand how I make a product that differentiates [my product from other products] . . .

and giv[es me] a market lead.”

149 Thus, the first question of many suppliers is will they lose their

intellectual property through participation on a B2B?150 Within the context of a concentrated

market, one panelist noted that suppliers also provide a marketplace with “pretty valuable
151 Knoll 308. 

152

 Id. 

153 Lucking-Reiley 455-56.

154

 Id.

155

 See infra Part 1.C.3.a (discussing pricing as proprietary information).

156 Clark 387-88; see also Kinney (Stmt) 5.

24

intellectual property, drawings [and databases,] for example.”

151 Given that, the panelist then

queried why the business would want to participate unless the business also has a capital

interest.152

Another panelist stated that the impact of shop-bots on market transparency will be

unclear until the intellectual property issues are “sorted out.”

153 Shop-bots are “metasearch

engines” that enable one to search multiple auction sites concurrently. The network effects any

one auction site enjoys would be less if sellers can post their products on any number of sites and

buyers can have ready access to them. 

Analogous issues are being litigated in the B2C e-commerce context where consumer

auction giant eBay and auction aggregator Bidder’s Edge have been involved in litigation over the

extent to which Bidder’s Edge can use software programs to cull the listings of eBay, similar to

the manner in which search engines operate.154 The role of intellectual property protections has

also been raised within the context of commodities exchanges. One panelist noted that the

NASDAQ is seeking changes in copyright law to prevent B2B commodities exchanges from

accessing their prices and using them without paying any fee.155

8. Switching Costs and Marketplace Interoperability 

The feasibility of participation in more than one marketplace depends in significant part on

a participant’s costs to switch between or among marketplaces and whether various marketplaces

are interoperable. One workshop panelist observed that large companies will not readily switch

from one B2B to another “because they have to invest hundreds of thousands of dollars to do the

integration” by “hooking their net marketplace[s] into the back-end systems of the buyers and

sellers, [i.e.,] into their supply chain and ERP systems[;] once that is done, it’s very hard for a

buyer to move to a different location without redoing that whole thing all over again.”

156

Many workshop panelists suggested that one of key factors to using more than one B2B

electronic marketplace is whether the marketplaces are interoperable. Although many panelists

indicated that currently there is not much technical interoperability among marketplaces,
157

 See, e.g., Stojka 408 (buyers need to gain access to many B2Bs, and today, “there isn’t

a lot of interexchange communication”); Boeth 116 (interoperability issues have not become so

painful that companies are screaming yet, but they will become important in the future); van Breen

205-06, 219 (by using a consortium, WorldWide Retail Exchange hopes to achieve an

interoperable standard in next few months so that exchanges can be linked in the future).

158

 See, e.g., Knoll 293; Open Buying on the Internet (Stmt) 1.

159 Fromer 111. Nonetheless, one workshop participant noted that in concentrated

markets, interoperability may be of limited value. Knoll 308. In a concentrated market,

participation in more than one exchange may require the company give up valuable productrelated information. Such a trade-off may be worth it only if the company has a capital stake in

the B2B. Id.

160 Tarkoff 120.

161 Kinney 119.

25

interoperability will be important in the future.157 Buyers may want the ability to select trading

partners without being limited by the technology they use.158 Indeed, as has been suggested,

suppliers want to be able to digitize the content of its catalog once and be able to place it on

multiple marketplaces without extensive reformatting.159 It may require not only interoperable

technical standards, but also interoperable business standards such as standardized product

descriptions.160 In any case, one workshop panelist cautioned, it may be premature to settle on

interoperable standards now and, consequently, to stop innovation.161 

* * *

Business-to-business commerce can assume as many forms online as it does offline. Thus,

while the building blocks of B2Bs are clear, the ultimate forms that B2Bs will take remains to be

seen. Nonetheless, understanding the foundation of B2B marketplaces and certain basics about

how they operate is necessary because, as will be discussed in Part 2, it is through the shift from

the offline to online world that tremendous gains in efficiency are promised. 
1

 See, e.g., WorldWide Retail Exchange (Stmt) 2 (“Reducing procurement costs will

necessarily translate into more and better goods – at lower prices – for consumers.”), 3, 8;

Teagarden 100 ("B2B e-commerce allows companies to do more with less. . . . [What that means

for] consumers as a whole is a lower price for the end product.”); Bloch and Perlman (Stmt) 13

(“[T]he creation and proliferation of B2B exchanges represents an important development that

promises to bring increased competition and more and better products to consumers at lower

prices in a broad variety of industries.”). 

2

 Jasinowski (Stmt) 3.

3

 Stewart 54.

1

PART 2

EFFICIENCIES OF B2B ELECTRONIC MARKETPLACES 

 B2Bs have the potential to generate significant efficiencies, and even to make markets

themselves more competitive. When businesses operate more efficiently and competitively, lower

prices, improved quality and greater innovation may result for consumers.1 Thus, B2Bs hold the

promise of significant consumer benefits. 

The full nature and extent of efficiencies that B2Bs will create has yet to be determined. 

Although some B2Bs are up and running and have so far created certain kinds of efficiencies,

many more B2Bs are still in the planning stages, with the potential to realize more, fewer, or

different kinds of efficiencies. Businesses are still assessing whether they need participation or

ownership interests in a B2B to achieve the cost savings potentially available through Internetbased transactions, or whether a “private network” through which an individual firm transacted

business over the Internet with its existing suppliers and customers might prove as effective in

achieving cost savings and less burdensome in terms of investment, time, and effort than

establishing or maintaining B2B ownership or participation. In the meantime, however, the

following summarizes what workshop participants reported about the nature of efficiencies, actual

and potential, that may be realized through B2Bs. 

A. Actual and Potential Efficiencies

Whether or not a particular type of efficiency is realized is highly fact-dependent and can

turn on any number of specifics, including the level of automation that characterizes the business,

industry, and marketplace in question. A survey conducted by the National Association of

Manufacturers in the Spring of 2000 found that “while 80 percent of manufacturers have Web

sites, only 1 percent of companies are conducting e-commerce through them.”

2

 This is entirely

consistent with the experience of workshop participants. One participant in the metals industry

observed that 80% of business-to-business processes are still manual, and the “20% that we

consider to be automated, really aren't automated.”

3

 In this latter category he placed the hundreds
4

Id. 

5

 Kim 181-82.

6

 Walsh 407.

7

 Knight 290.

8

 Id. 

9

Id. See infra at Part 1.C.3.b (describing reverse auctions).

10 Id.

11 Fromer 45-47 (discussing administrative costs as pertains to the financial department of

a business).

2

of service centers that can receive an EDI transaction through PC software, but that must print

out the order and then have it re-keyed to process the order through their system.4 

Even if the technology is in place and accessible, there is still likely to be an “adjustment”

period. One panelist noted that among her clients, typically small-sized businesses, more than 60

percent that completed their first transaction through her B2B did not do so online but, instead,

called the toll-free number. However, she noted that 90% of these same businesses close the

second transaction online.5 The existence of a transition period applies to larger companies as

well. “It’s [relatively] easy to change legacy systems,” a panelist explained, “it’s very hard to

change legacy behavior. And legacy behavior is what American and global industries are all

about.”

6

 

In some instances, lack of automation could act as a bar to using these new technologies. 

A workshop participant discussing the electronic equipment industry stated that many suppliers

within the industry “don’t have . . . internal decision-making capabilities automated or

integrated.”

7

 As such, if their main buyers were to require the suppliers to engage in a reverse

auction, that would cause “tremendous fear.”

8

 A reverse auction requires the seller-participants

to "know or be able to calculate very quickly, their walk-away price."9 Such calculations would

be hard when, for example, not only is the relevant information stored on many different

spreadsheets, but it may also be contained "on Post-It notes on someone's desk."10 The

receptiveness of many industries to these newer technologies often varies considerably. 

B. Administrative Costs

B2Bs may facilitate substantial savings of administrative costs, the costs of effecting the

transaction itself. Administrative costs include the time and energy a firm expends for everything

from placing an order to issuing a check when goods are received.11 Currently, such transactions
12 Tarkoff 32. 

13 The substantial prospect for increased efficiency appears to hold to true for highlyengineered products, such as automotive parts, as well as outright commodities and more

modestly-engineered retail goods. Knoll 263.

14

 Bhatt 276.

15 Id. 

16 Loevy 261. Other estimates are more modest. See, e.g., Jasinowski (Stmt) 3 (reduction

in transaction costs by 10% or more had been experienced).

17 Verloop 394. See also Phillips 269 (“40 percent of the orders that are done manually

have [require] some sort of rework after the fact [owing to inaccuracy]”).

18 Verloop 394. 

19 Id.

3

usually take place through some combination of phone and fax interactions. One panelist detailed

the process of purchasing via the phone and fax: An employee would have to call his purchasing

manager; the purchasing manager call her supervisor and then send the response back to the

employee, who would fill out a purchase order manually (purchase orders can be extensive

documents), fax that purchase order to the supplier, who would determine the right price and

return an invoice which, itself, would have to be processed.12 Regardless of industry, company

size, or product involved,13 the costs attendant to purchasing through these more traditional

mechanisms are often described as substantial and subject to significant reduction through B2B

marketplaces. For example, one workshop panelist stated that, within the chemical and

pharmaceuticals industry, the cost of a "face-to-face sales call is about $575.”

14 One of his dealers

concluded, after some study, that the same transaction would cost about $10 through a B2B.15

Another panelist, addressing small and medium-sized enterprises in particular, stated that what

would otherwise be a paper transaction costing $100 could be reduced to $10 when conducted

through a B2B.16 

Administrative costs also encompass the cost of fixing an incorrectly processed

transaction. The pervasiveness and, therefore, the expense of administrative mistakes in the

procurement process appears to be high. One panelist said that one of his "major retailers" told

him that "40 percent of all of their purchase orders have errors in them."17 The panelist

elaborated, "That means that 40 percent of [the time of] their accounting staff, their receiving

staff, and their production staff is spent on doing nonvalue-added activities."18 The result is that

consumers face higher prices to "cover our inefficiencies."19 This panelist opined that ecommerce over the Internet can "take a very large percentage of that and just make it
20 Id. 

21 Gray 156.

22 Phillips 269-70.

23

 Id. 

24 Morgan Stanley Dean Witter (Stmt) 97.

25

 Id.

26 WorldWide Retail Exchange (Stmt) 7.

27

 Id.

28 van Breen 166. 

4

disappear."20 Likewise, a representative of a multinational drug company predicted that, in fact, it

is through improvements in the “speed and accuracy” that “most of the value is going to be

gained.”

21

 

Similarly, the “cost of exception handling goes way down online.”

22 “Exception handling”

refers to special ordering, which is facilitated when orders are properly configured and “everyone

can see what . . . [was] agreed on.”

23 Other orders that are complicated to fulfill include

“backorders, partial shipments, returns, substitute products.”

24 Fulfilling these orders is laborintensive and, therefore, expensive. “Moving the fulfillment process online should lower the

number of exceptions since the buyer or technology will be able to resolve many of the issues [in]

real time.”

25

Addressing administrative costs from a more global perspective, one panelist observed

that international sales are much more complex than sales within a single country. For example,

buyers and sellers from different countries bring with them not only their own languages and

currencies, but also their own “methods, business forms, product codes and descriptions and

technical capabilities.”

26 Electronic B2B maketplaces may make it possible to manage the

complexities resulting from such differences in “rational, cost-reducing ways.”

27 The same

advantages that B2B e-marketplaces can provide to trade occurring between businesses located in

different countries also would extend to single companies with branches that span many national

boundaries.28 

C. Search Costs

B2Bs may also significantly reduce search costs, the costs buyers incur in identifying

suppliers and vice-versa. The ease with which businesses can identify one another depends on,
29 Morgan Stanley Dean Witter (Stmt) 12 (discussing commerce transparency and

identifying its primary dimensions).

30 Kim 153-55. There were differing views regarding the impact of B2Bs on

standardizing goods. See, e.g., Knoll 281 (noting participation on B2Bs could be “scary” in that

it could result in the increasing commodification of products); Enron (Stmt) 3 (noting exchanges

could also attempt to “unreasonably influence nonprice factors, [such as] . . . compelling suppliers

to adopt standards that only correspond to that exchange[’s] . . . interests”); Sandhu 279 (noting

that many products are already standardized and B2Bs will make it more difficult to conceal that

fact from the consumer); Mann 456-58 (noting that in light of the current diversity in products

and their buyers, she is skeptical that B2Bs will standardize them).

31 Eryn Brown, Is the Internet Stronger than Steel?, Fortune, May 15, 2000, at 162; 

Morgan Stanley Dean Witter (Stmt) 35 (noting lower customer acquisition costs).

32 Phillips 269.

33

 Id. 

5

among other things, how readily a firm can compare prices, find suppliers or buyers to meet its

needs, and identify good substitutes for the product sought.29 All other things being equal, as

transparency along any or all of these dimensions increases, search costs generally decrease.

Reducing search costs in any or all of these ways could enhance competition and result in lower

prices for consumers. 

B2Bs may make it easier for buyers to comparison shop. For example, one panelist

described how her B2B standardizes and aggregates data that eases comparison shopping,

especially for small buyers, through presenting the products of multiple suppliers and their

different prices and terms. The practical implications of this were underscored by the following

anecdote: Under the traditional procurement system, a 20-person manufacturing company would

have to page through “really, really thick” paper catalogs in order to comparison shop for any

purchase – even something as small as an electric screwdriver. Through a B2B, comparison

shopping that used to take several hours (if it was done at all) is now taking a few minutes.30 

Reduced search costs also can benefit suppliers. Small and large suppliers alike can make

money by having greater and cheaper access to more potential customers. The CFO of a small

steel company during February and March 2000 used a B2B e-marketplace in the metals industry

to “hook[] up with more than 50 new customers, 90% of whom he had never heard of before.”

31

 

Large suppliers may also benefit. Those large suppliers that previously did not find it

profitable to serve smaller buyers may now have “the ability to aggregate small customers in a

central place and let them basically in a self-help model serve themselves.”

32 This enables the

larger companies to undertake transactions that previously were not efficient.33 For example, the
34 Eryn Brown, Is the Internet Stronger than Steel?, Fortune, May 15, 2000, at 162. 

35 Kafka 169.

36 Kim 154.

37 Stewart 53.

38

 Id. 

39 B2G, business-to-government, is treated herein as a form of B2B wherein one of the

businesses is the government.

40 Huff 147-48. 

41

 Id. at 149.

6

CFO of the same small steel company mentioned above stated that, whereas “[he] used to have to

make 20 phone calls to get one coil of steel,” through use of a B2B he now has purchasing

relationships with large suppliers who previously would not have even “notice[d]” this small

buyer.34 

In highly fragmented industries, it is particularly important to be able to reach suppliers at

a lower cost.35 The examples above involve MROs and the metals industry, both of which have a

highly fragmented supplier base. In MRO distribution, the “top 50 players make up 13 percent of

the marketshare. The number one player has less than three percent of the market share.”

36

Likewise, the metals industry is “highly, highly fragmented.”

37 “[T]he largest metals company in

the world only owns three and a half percent of the global market.”

38 Reduced search costs may

be particularly significant in this context. 

Nonetheless, industries with more concentrated supplier bases – such as those

manufacturing more complex products – also may benefit from heightened market transparency,

for example, through reverse auctions. The lure of a reverse auction is that if competition in the

marketplace is “relatively robust,” if the good has “a lot of price flexibility,” and if a contract for a

sufficient amount of money is at stake, a buyer could have sellers from across the globe bidding

against each other for its business. For example, in May 2000, the federal government held its

first reverse auction.39 The U.S. Navy sought a highly technical part with extensive specifications

– the brains of an ejection seat used in Air Force aircraft. Three qualified sources which had

previously provided such goods bid against one another. As the Navy Captain in charge of

procurement summed it up, “[we] went online and we ended up achieving a savings of about 28

percent.”

40 The success was such that the long-term vision of the Navy Inventory Control Point is

to “do all of our competitive procurements that make sense in a reverse auction scenario.”

41

B2B reverse auctions also can facilitate competition between heterogeneous products by
42 Kinney 77-79.

43

 Id. 86-87.

44 Salomon Smith Barney (Stmt) 16. 

45

 Id. See also Kinney 79.

46 Salomon Smith Barney (Stmt) 16.

47

 Id. at 16, 47.

48

 Id. at 19. 

49

 Id. 

50 Mashinsky 257-58.

7

making it possible to compare “apples and oranges” in real time. In a so-called “transformation

auction,” for example, heterogeneous products from suppliers are meaningfully compared by B2B

software so that the buyer hosting the auction can make intelligent choices about what to buy.42

This would be particularly useful where fast calculations are required to present different options

in comparable terms – such as buy versus lease, or when there are multiple sources of a single

commodity (i.e., coal) but each one has different characteristics (i.e., sulphur content).43

D. New Markets

Search costs could be reduced to such an extent that sales channels become viable that

previously were not viable. As one analyst stated, electronic B2Bs have led to “[n]ew [m]arket

[c]reation.”

44

 

One example discussed by workshop panelists involved idle or business surplus.45 Capital

goods, such as a forklift, may have significant value even though the current owner no longer puts

it to productive use. Prior to the Internet, significant revenue went unrealized in the absence of a

viable market for such products.46 That is because it was often not cost effective for the owner to

disseminate information about its product and to gather relevant information regarding potential

buyers. The “aggregating power” of the Internet can overcome circumstances where otherwise

“the cost of information gathering outweighs the value of the surplus.”

47

 

Another example of "new markets" relates to goods that are subject to “expiration.”

48

 

Just as perishable describes how physical goods such as fruit might spoil, "digital goods and

services" are said to be "susceptible to expiration.”

49 Time is the critical factor. For example, the

bandwidth industry runs at about 20% utilization. As one industry member said, the issue is

pretty clear, “whatever you haven’t sold depreciates to zero.”

50 Bandwidth that would otherwise
51 Salomon Smith Barney (Stmt) 17.

52 Shridharani 157. See also Tarkoff 33. 

53 Gray 160-61.

54 Clark at 404.

55 Salomon Smith Barney (Stmt) 23.

8

have gone unused is now being standardized and traded over the Internet through an exchange

mechanism. Another example, the National Transportation Exchange (NTE), is a B2B focusing

on the billions of dollars of trucking capacity that goes unused each year.51 Through the NTE,

shippers are able to post their excess trucking capacity. These postings are then matched with

businesses who have goods to transport. 

E. Maverick Purchasing

Maverick purchasing – buying that occurs outside the normal channels – is a substantial

problem for businesses. The National Association of Purchasing Managers estimates that

maverick purchasing constitutes approximately thirty percent of company purchases.52 B2Bs may

enable businesses to reduce maverick spending and thereby reduce excess costs. 

One significant example involves the volume contracts that buyers and suppliers frequently

establish through processes such as annual negotiations. Under these negotiated contracts,

individual orders are placed as the need arises. Maverick purchasing by buyers unaware of prior

negotiations could result in the failure of a business to channel its purchases through its negotiated

volume contracts.53 Centralization of purchasing information could address that problem and also

help prevent buying that reflects who the purchasing agent plays golf with rather than the volume

discounts that have been negotiated.54 

Electronic B2Bs are being designed to reduce the amount of unauthorized spending in

numerous ways, including the imposition of spending limits for employees, and the preselection of

specific suppliers and or specific products that can be purchased with no additional approval. 

B2Bs can also streamline the process of receiving approval if the purchaser seeks to diverge from

the parameters of his or her purchasing authority. This means fewer delays and fewer

unauthorized purchases.55

F. Joint Purchasing

B2Bs also may afford efficiencies through increased joint purchasing. Joint purchasing
56 Clark 403.

57 One analyst viewed such a system as the virtual equivalent of an offline distributor. 

Kafka 228-29. 

58 See Kim 227-28; Morgan Stanley Dean Witter (Stmt) 81. See also Cogan 107-08

(Another B2B, GoCo-op, works with companies where there is “an opportunity for competitors

to get together and either leverage certain services or have a division of labor where each of the

members provides a different service or a different portion of the services to each other, and they

gain economies of scale that way.”). See infra at Part 1.B.2 for a discussion of the role of XML

in facilitating the rise of B2Bs. 

59

 See, e.g., Sullivan 252 (A “compelling reason” to join a B2B is to “leverag[e] the web

technologies and ERP technologies out there to integrate into their back ends and improve their

bottom lines.); Mirek 145 (Important to participation in B2Bs is their ability to provide “increased

9

can help reduce transaction costs through scale economies in purchasing, reduce manufacturing

costs, and produce other efficiencies as well. 

The following example illustrates the benefits of volume discounts for a single business

with multiple buyers. Appleby’s is a chain restaurant with approximately 400 company-owned

stores. Through the services of a B2B, Instill, Appleby’s was able to know exactly who was

buying what and when. If each store goes through different distributors, it is extremely difficult to

aggregate that data. But, once aggregated through a B2B, the chain could go to its suppliers and

ask for a volume discount.56 

 

Price discounts because of volume can also be achieved by aggregating the purchasing

needs of wholly-separate businesses. One B2B, equalFooting, enables small business buyers to

achieve some volume discounts through a “virtual” aggregation of purchases.57 The founder of

this B2B noted that as a logistical matter, the B2B would be unable to pool discrete orders as the

need for them arises because in the MRO context, there are “over two million SKUs of items,”

and it is unlikely that sufficient buyers will need the same item around the same time. Instead, this

B2B successfully requested that suppliers treat it as a large national account entitled to volume

discounts. Frequently, this B2B received discounts not only from the suppliers, but also from

shippers and other related services. Small businesses receive discounts on their purchases,

discounts that would have otherwise been unavailable. XML integration between the B2B and

the suppliers is integral to keeping such arrangements cost efficient for suppliers.58

G. Systems Integration

Not only can B2Bs increase efficiency through the many mechanisms discussed thus far,

but B2Bs can also be integrated with a firm’s legacy computer systems so as to continue to reap,

and expand upon the benefits of the earlier systems.59 
operational efficiencies, such as back-office integration.”) 

60 Kinney (Stmt) 5. 

61 Morgan Stanley Dean Witter (Stmt) 81. 

62 Kinney (Stmt) 5-6.

63 Sculley & Woods (Stmt) 1 (“[T]hese net markets have the capability to tie together the

manufacturer with its suppliers (Tier 1) and its suppliers’ suppliers (Tiers 2 & 3). This can lead to

greater efficiencies . . . that dramatically reduce manufacturing time, inventory levels and

distribution costs.”).

64 Kinney (Stmt) 10.

65 Stewart 65.

66 Kinney (Stmt) 10.

10

As a practical matter, integrating B2Bs with back-offices or back-ends means that the

B2B can receive necessary information, such as purchasing requirements, as it has been assembled

by the legacy systems rather than requiring input into new B2B order screens.60 The process may

also work in reverse, with the B2B sending information directly into a legacy system. That way, if

a B2B sends e-mails to panelists regarding orders, those business will not have to “re-key” that

information into their legacy systems in order to process it.61 For example, an ERP system may

provide many items of information, including a determination of what is needed and when,

notification of relevant departments (e.g., receiving department) that a delivery is due, and

verification of an invoice for the accounts payable department. “Because these internal

notifications are so important, a web site that merely accepted orders could not serve industrial

buyers. The receiving dock would not have authority to receive the goods, nor would the

accounts payable department have authority to pay the invoice.”

62

 

H. Supply Chain Management

Heightened interaction between buyers and suppliers may facilitate supply chain

management. B2Bs could enable suppliers all along the supply chain, potentially reaching

multiple tiers of suppliers, to more quickly and more accurately learn what the buyers want and

when they want it.63 In the absence of such information, “buyers and sellers must make

assumptions about each other’s needs.”

64 Unfortunately, as a practical matter, such efforts to

predict needs are typically ill-fated. One workshop panelist stated that a steel company CEO had

told him that in “the last 91 years they’ve never got a forecast [right].”

65 Consequently, “when

evaluated along the entire length of a supply chain, the amount of inventory being held for

contingencies is quite large, and collectively adds much inventory carrying cost, obsolescence,

spoilage, or overstocks [or shortfalls].”

66 Supply chain management is particularly important for
67 Kafka 169.

68 Jay Akasie, Ford’s Model E, Forbes, July 17, 2000, at 30, 31. 

69

 Id.

70 Kinney (Stmt) 28.

71 Gray 156. See also WorldWide Retail Exchange (Stmt) 8 (noting potential for

“improved payment terms”).

72 WorldWide Retail Exchange (Stmt) 8.

73 Gray 156.

74 Kafka 146.

11

“very complex products,” such as many direct products, because efficiencies are more closely tied

to capacity planning.67 Some speculate that B2Bs will enable companies to move from “push

marketing” to “pull marketing.”

68 In a push model, business produces first and then tries to sell. 

In a pull model, “the consumer – stimulated, of course, by smart advertising and promotion – will

pull product through the supply chain.”

69

B2Bs are equipped to improve inventory management. “[Supply chain] optimization

techniques require a near-constant level of analysis and refinement of production plans as

conditions change, the volume of interaction that might occur between a buyer and a supplier

attempting to jointly optimize is huge. The Internet can help solve the integration challenge by

providing a low-cost conduit for requests and acknowledgments, as well as by defining standards

for how requests and acknowledgments are formatted and shared.”

70

 

With regard to inventory management, a purchase order may have several hundred line

items on it. And companies may not pay the order until all of those line items are adequately

reconciled. That is, it is only when someone signs off that they have received all the proper items

in proper form and condition that the purchase order moves from accounts payable to the treasury

for actual payment.71 The result of this protracted process is that the supplier ends up bearing the

financial burden of “a lot of inventory financing” resulting in “a lot of cost to capital.”

72 Increased

automation, “getting the items standardized and getting that invoice flowing electronically and the

reconciliation of that invoice electronic,” will save considerable money.73

I. Collaborations

Enhanced efficiencies may also arise from other forms of collaboration.74 Outsourcing
75 Jasinowski (Stmt) 2.

76 Sandhu 277-78. See also Lucking-Reiley 453 (“[I]f, in fact, electronic commerce is

successful at reducing transaction costs the way everyone thinks it’s going to be, we may see a lot

more outsourcing by firms, and a lot less vertical integration.”).

77 Jasinowski (Stmt) 4. See also Morgan Stanley Dean Witter (Stmt) 46 (referring to

“joint design processes, advanced part change notification” as “product life cycle collaboration”);

Sculley & Woods (Stmt) 1 (noting that B2Bs can “lead to greater efficiencies in the design of

products”). 

78

 See, e.g., Cooney 328-29; Spradlin 330-31.

79

 See, e.g., Arnold 192; Chen 167-68; Libicki 251; Loevy (Stmt) 2-4; Kafka 194-95

(referring to such middlemen as “trust brokers”).

80 Shridharani 175.

12

specific tasks through collaborations may enable a business to better focus upon its core

competencies.75 One panelist noted that some suppliers do not view the direct sales process as a

core competency. For such suppliers, B2B e-marketplaces add value because they facilitate

outsourcing or adding on of another channel of distribution.76 

B2Bs also may facilitate collaborative conduct such as joint product design. “Increased

collaboration between supplier, buyer and customer reduces the time to develop, produce and

distribute new products. Improved communications enable stronger and more beneficial

relationships between parties. . . . [For example, n]ew product specifications can then be

transmitted over the Internet and sent to the factory floor for specialized production runs.”

77

 

J. Middlemen

Middlemen can play a significant role in generating efficiencies within the B2B context.78

For example, as noted above, B2Bs may result in higher price transparency. The opportunity and

the quandary for small businesses or less well-known brands is that buyers on a B2B must have

sufficient confidence in order to be willing to do business with small businesses or less wellknown brands that may seem untested to the buyer. Third-parties, or middlemen, have entered

this void and are providing services that better enable B2B panelists to determine whether or not

the entity with which they are dealing is a viable buyer, seller, or – for that matter – B2B.79

Middlemen have historically played the role of taking title to materials and acting as a

distributor. One workshop panelist noted, “[t]here will always be a need for physical delivery.”

80
81

 See, e.g., Libicki (Stmt) (weights and measures are an example of possible logistics

services).

82

 See, e.g., Allgaier 175-76; Loevy 327.

13

Accordingly, the more seamlessly the B2B is able to incorporate logistics services,81 the better for

its participants. But when a middleman is inefficient or fails to provide any value-added services,

disintermediation may also be an avenue for increased efficiencies.82 

 * * *

There is no clear division between the differing efficiencies detailed. When efficiency is

promoted in one area, other efficiencies are often concurrently promoted. What is more, it is not 

clear to what extent these efficiencies will be realized and which, if any, will not. Part 3 will

discuss the role of efficiencies within antitrust analysis. 
1

 See supra at Part 2.B-2.I.

2

 To date, the Commission has reviewed only one B2B. See In re Covisint, Inc., File No.

001 0127 (Sept. 11, 2000), closing letter to General Motors Corp., Ford Motor Co., and

DaimlerChrysler AG available at <www.ftc.gov/os/2000/09/covisintchrysler.htm> (last visited

October 23, 2000). In its letter closing the investigation of whether the formation of Covisint

violates Section 7 of the Clayton Act and terminating the waiting period under the Hart-ScottRodino Antitrust Improvements Act, the Commission found no further action warranted at this

time but stated as follows:

Because Covisint is in the early stages of its development and has not yet adopted bylaws,

operating rules, or terms for participant access, because it is not yet operational, and in

particular because it represents such a large share of the automobile market, we cannot say

that implementation of the Covisint venture will not cause competitive concerns.

Id.

1

PART 3

ANTITRUST ANALYSIS OF B2BS

As illustrated in Part 2, B2Bs can offer tremendous efficiencies. They can help reduce

administrative costs, cut search costs, open new markets, check unmonitored corporate spending,

aid efficient joint purchasing, facilitate supply chain management, and facilitate efficient

collaborations for such projects as joint product design, among other things.1

B2Bs may also raise a wide variety of antitrust issues, depending on their structure,

bylaws, operating rules, contracts with participants, ownership and management, the

characteristics of the markets in which they operate and that they may affect, and other factors. 

Workshop panelists reported, however, that the antitrust concerns that B2Bs may raise are not

new and agreed that B2Bs are amenable to traditional antitrust analysis. Some panelists

commented that, when antitrust concerns do arise, familiar safeguards may be sufficient to address

those issues. Indeed, it appears likely that many potential concerns could be eliminated through

well-crafted B2B operating rules. Consequently, the discussion that follows does not warn of

insoluble problems, but rather lays the foundation for identifying and addressing circumstances

that warrant antitrust scrutiny.2 

Rather than address all potential issues, this Report focuses only on those issues that were

discussed extensively at the workshop. Workshop participants expressed concerns about how

B2Bs would affect competition in two types of broadly defined markets: the markets for goods

traded on B2Bs (or derived from those traded on B2Bs) at both the seller and the buyer levels,

and the market for marketplaces themselves. Participants noted that markets for goods traded on

B2Bs (or derived from those traded on B2Bs) might be affected by information-sharing
3

 Remarks of Commissioner Thomas B. Leary Before FTC Workshop on Competition

Policy in The World of B2B Electronic Marketplaces, Washington, D.C. (June 30, 2000),

available at www.ftc.gov/bc/b2b/b2bleary.htm (last visited Oct. 18, 2000).

4

 Remarks of Commissioner Orson Swindle Before FTC Workshop on Competition

Policy in The World of B2B Electronic Marketplaces, Washington, D.C. (June 29, 2000),

available at www.ftc.gov/bc/b2b/b2bswindle.htm (last visited Oct. 18, 2000).

5

 Remarks of Commissioner Thomas B. Leary Before FTC Workshop on Competition

Policy in The World of B2B Electronic Marketplaces, Washington, D.C. (June 30, 2000),

available at www.ftc.gov/bc/b2b/b2bleary.htm (last visited Oct. 18, 2000).

6

 Remarks of Commissioner Sheila F. Anthony Before FTC Workshop on Competition

Policy in The World of B2B Electronic Marketplaces, Washington, D.C. (June 29, 2000),

available at www.ftc.gov/bc/b2b/b2banthony.htm (last visited Oct. 18, 2000).

7

 Remarks of Commissioner Mozelle W. Thompson Before FTC Workshop on

Competition Policy in The World of B2B Electronic Marketplaces, Washington, D.C. (June 30,

2000) available at http://www.ftc.gov/bc/b2b/b2bthompson.htm (last visited Oct. 18, 2000).

8

 Proger 508-09 (suggesting “traditional antitrust analysis” for B2Bs, and referring to the

Department of Justice & Federal Trade Commission, Antitrust Guidelines for Collaborations

Among Competitors (2000) (hereinafter “Competitor Collaboration Guidelines”)); see also

Wilkinson 557-58 (noting that although the facts presented by B2Bs are novel, the antitrust

“analysis remains the same”); Keller & Heckman (Stmt) 1-2 (noting that the Competitor

2

agreements that could facilitate coordination, the exercise of monopsony power by large buying

groups, or agreements among competitors to exclude or discriminate against rivals of a B2B’s

participant-owners. In addition, the health of competition among marketplaces themselves might

be affected by exclusivity, either de facto through over-inclusive ownership structures or through

rules or incentives that keep a B2B’s participants from using or supporting a rival exchange. 

Such competition issues are not new to antitrust analysis. Indeed, “the issues in the B2B

area are the same kinds of issues that [the FTC has] dealt with in joint venture analysis.”

3

 “The

evolution of dynamic economies is about change, improvements, success, and failures, but always

progress,”

4

 and although such dramatic technological changes have sometimes “turned the world

upside down . . . our antitrust laws and basic modes of analysis have survived.”

5

 Monitoring

B2Bs under the “old rules” of antitrust will present “new challenges to the FTC,” to be sure.6 But

the FTC has learned from its decades of experience “that in new markets, like those based in

technology, . . . the fundamental principles of antitrust and consumer protection still apply.”

7

Panelists agreed that B2Bs are subject to traditional antitrust analysis, noting that “the joint

venture analysis and the [Competitor] Collaboration Guidelines are appropriate in this

framework.”

8

 Accordingly, the following discusses these issues pursuant to familiar principles of
Collaboration Guidelines provide “an analytical framework for examining the organization and

operation of B2B sites,” and that “[a]lthough Internet transactions and B2B sites are based on

new or emerging technology, the same fundamental analytical framework continues to apply”);

Foer (Stmt) 1-2 (refuting argument that antitrust should not apply to the “new economy”).

9

 Competitor Collaboration Guidelines at § 3.31(b).

10

 See, e.g., supra at Part 2.C, 2.D, 2.H, 2.I. See generally United States v. United States

Gypsum Co., 438 U.S. 422, 443 n.16 (1978) (exchange of information among competitors can “in

certain circumstances” promote efficiency and competition). 

11

 See, e.g., Foer (Stmt) 2 (“Too much [information] sharing” can enable participants to

fix prices “through coordination mechanisms that are so subtle that price fixing may never be

provable in court” and thus “[w]e need antitrust rules as to what information can or cannot be

shared among competitors.”); Cooper 505 (collusion is an issue); Baker 494-95 (raising collusion

concerns); Enron (Stmt) 3 (information made available through a B2B “should not be used to

reduce competition” among the B2B’s participants). Cf. Charles F. Rule, Mark E. Plotkin, &

Michael J. Fanelli, “B2B or Collusion? That Is the Question Antitrust Enforcers Will Ask of

Business-to-Business Sites,” Legal Times, April 3, 2000, at 36.

3

antitrust law.

A. Market for Goods Bought & Sold on B2Bs

1. Information-Sharing Agreements

As the Competitor Collaboration Guidelines make clear, information-sharing agreements

among competitors may be procompetitive and reasonably necessary to realize a collaboration’s

procompetitive benefits.9 Indeed, information-sharing within B2Bs may, under certain

circumstances, help them realize important efficiencies and facilitate prompt competitive

responses in the market.10 However, at the FTC’s workshop, several participants expressed

concerns that information-sharing agreements in the context of B2Bs could facilitate coordination

on price or other competitive terms and thereby be likely to injure competition in the market for

the goods traded on the B2B or in downstream product markets.11 They noted that the same

factors that make the efficiencies of B2Bs possible – the collaborative nature of B2Bs and the

Internet’s power to allow the efficient exchange of information – also have the potential to raise

anticompetitive concerns, particularly in connection with information sharing. The difficult task is

determining when information-sharing agreements are procompetitive and when they are likely to

injure competition. As one participant put it, “Whether [instant transmission of information]

constitutes the effective functioning of Adam Smith’s perfect marketplace or collusive violations
12 Keller & Heckman (Stmt) 2. See also Baker 494 (“B2B exchanges seem to me to be

about information exchange . . . but of course information exchange can be the source of

competitive problems as well.”). But see Jasinowski 503-04 (stating that information sharing is

more likely to be pro-competitive than anticompetitive).

13

 See, e.g., OESA (Stmt) 4 (if “the exchange is controlled by all participants in a specific

level of the supply chain, they will be incentivized to share specific information across that level

and to mask the information with regard to participants at different levels.”); Keller & Heckman

(Stmt) 5-6 (information exchange concerns “may be exacerbated” where one or more market

participants own the marketplace). Some raised concerns about whether the participant-owners

might do so by sending employees to serve on the board of directors of the B2B or to work for

the B2B in some other capacity. See supra at Part 1.C.6.

14

 See, e.g., Currenex (Stmt) 2; Bloch & Perlman (Stmt) 4-5; Keller & Heckman (Stmt) 5;

cf. Mirek 188 (if B2B allows sellers to learn from each other confidential information about

buyers’ needs in advance, sellers can increase their prices in light of those needs); Shridharani 185

(raising similar concern). 

15

 See, e.g., Keller & Heckman (Stmt) 5; Bloch & Perlman (Stmt) 4-5. 

16

 See Bloch & Perlman (Stmt) 5. 

17

 See OESA (Stmt) 7. 

4

of antitrust laws remains to be seen, and will likely differ in particular cases.”

12

 

Participants raised a variety of ways in which certain information-sharing agreements

through B2Bs could facilitate collusion. In particular, they expressed concern about the

incentives of the B2B’s participant-owners to share competitively sensitive information only

among themselves.13 They asked, for example, whether seller-owners in a concentrated market

could agree to a practice that would let them see B2B data about the prices that their rivals are

charging, and whether that could lead to their tacit collusion on price – tacit collusion that might

be more likely to succeed given an enhanced ability to monitor such interdependent behavior

through the B2B.14 Concerns were not limited to sellers’ actions. Workshop participants

questioned whether buyers could share information through a B2B that could lead to tacit

collusion and the effective policing of such a tacit arrangement. For example, they expressed

concerns as to whether buyers could agree to share through the B2B enough information about

their purchases of inputs to lead to tacit collusion on the prices they would charge for their

outputs or on the quantity of outputs that they would produce.15 Such a practice could also offer

a means of detecting deviations from such tacit arrangements, they noted.16 Moreover, they asked

whether buyers could agree to share information through a B2B about transaction terms such as

“payment options, payment dates, financing terms, and perhaps even warranties,” and whether

that could lead to the “standardization” of those terms.17 These are but a sampling of the
18

 See Gypsum, 438 U.S. at 443 n.16. Of course, price-fixing is a per se violation of

Section 1 (see, e.g., Broadcast Music, Inc. v. Columbia Broadcasting System, 441 U.S. 1, 8

(1979)), and evidence of information exchange can be used to support a claim of a price-fixing

scheme. See, e.g., In re Coordinated Pretrial Proceedings in Petroleum Products Antitrust

Litigation, 906 F.2d 432, 447 n.13, 448 n.15 (1990), cert. denied, 500 U.S. 959 (1991); Areeda,

Antitrust Law, at ¶¶ 1407a, 1407b (1986). However, discussion of such price-fixing agreements

is beyond the scope of this report. 

19

 See Competitor Collaboration Guidelines at § 3.3.

20

 See infra at Part 3.A.1.a; see also Competitor Collaboration Guidelines at § 3.31(b).

21

 See infra at Part 3.A.1.b, c; see also Competitor Collaboration Guidelines at §§ 3.3,

3.36; Susan S. DeSanti & Ernest A. Nagata, “Competitor Communications: Facilitating Practices

or Invitations to Collude? An Application of Theories to Proposed Horizontal Agreements

Submitted for Antitrust Review,” 63 Antitrust L.J. 93, 96 (1994) (outlining issues to address in

applying rule of reason analysis to an information exchange). Panelists noted, however, that even

though antitrust enforcers should test efficiencies only when the analysis suggests anticompetitive

consequences in the first place, see Competitor Collaboration Guidelines at § 3.31 (“The Agencies

do not undertake a full analysis of procompetitive benefits . . . unless an anticompetitive harm

appears likely”), counselors may wish to ask their clients, as an initial matter, whether their B2B

practices are necessary to promote the efficiencies they seek. See Krattenmaker 500, 577; Muris

554-55; cf. Baer 538.

5

concerns raised. 

Agreements to share information are typically assessed under Section 1 of the Sherman

Act, 15 U.S.C. § 1, under the “rule of reason.”

18 Thus, an antitrust analysis of such agreements

would focus first on the likelihood of any anticompetitive effects,19 examining, among other

things, the structure of the market, the market shares and relationships among the informationsharing parties, and the kind of information shared.20 Only if the analysis suggests that

anticompetitive harm is likely would the focus shift to an examination of the efficiencies the

information-sharing practice may promote, and whether practical, significantly less restrictive

alternatives would achieve the same efficiencies.21

Certain types of information-sharing agreements might facilitate coordination on price or

other matters. In principle, a firm in a concentrated industry 

may set its prices knowing that a price cut would be quickly matched by others; each

would also know that stable high prices, maintained by all firms, would benefit all.

But, the problem for such firms (at least in principle) is that each also knows that for

it alone the best of all possible worlds is to attract customers through a small price cut

not matched by the others. Since all know this, how can they keep each other from
22 Clamp-All Corp. v. Cast-Iron Soil Pipe Inst., 851 F.2d 478, 484-85 (1st Cir. 1988)

(Breyer, J.), cert. denied, 488 U.S. 1007 (1989). See also DeSanti & Nagata, 63 Antitrust L.J. at

95-96 (distinguishing “coordinated interdependence or tacit collusion” from “a facilitating practice

that increases the likelihood of tacit collusion”).

23 Clamp-All, 851 F.2d at 484; see also DeSanti & Nagata, 63 Antitrust L.J. at 95. Nor is

tacit collusion on price the sole concern. Tacit collusion on other terms may be significant as

well. See, e.g., DOJ & FTC Horizontal Merger Guidelines at § 2.11 (April 2, 1992, revised April

8, 1997) (“Terms of coordination need not perfectly achieve the monopoly outcome in order to be

harmful to consumers.”); Catalano v. Target Sales, 446 U.S. 643 (1980) (per curiam) (unlawful

agreement on credit terms). 

24 Competitor Collaboration Guidelines at § 3.31(a).

25 OESA (Stmt) 3.

26 OESA (Stmt) 3.

27

 See, e.g., United States v. Container Corp. of America, 393 U.S. 333, 337 (1969)

(agreement to exchange information held to violate Section 1); United States v. ATP, 58 Fed.

Reg. 3971 (1993) (Proposed Final Judgment and Competitive Impact Statement, U.S. v. Airline

Tariff Publishing Co.) (describing charge that airlines operated a fare dissemination system that

6

cutting prices? How can they guarantee that industry prices stay high? How can they

prevent the forces of competition from breaking out, with one or another firm yielding

to the temptation to cut its own prices while hoping the others will not match the low

price? Each firm realizes that any formal communication with its competitors about

such matters could lead to antitrust prosecution and a finding of a traditional

agreement. But each fears that, without such communication, its competitors will

“chisel” on the tacit pricing arrangement, perhaps through secret or selective price

cuts (which from the public’s point of view should be encouraged).22

Information-sharing agreements (and other facilitating practices) can reduce this uncertainty. 

They can increase the likelihood that firms in a concentrated market will set supra-competitive

prices and can “help [them] ‘police’ interdependent pricing practices, practices that help them

keep prices above competitive levels without the need for any formal price agreement.”

23

Likewise, as the Competitor Collaboration Guidelines make clear, buying collaborations might

also “facilitate collusion by standardizing participants’ costs or by enhancing the ability to project

or monitor a participant’s output level through knowledge of its input purchases.”

24 As one

industry’s suppliers’ association has noted, an “entirely transparent collaborative venture” can

reduce the “level of uncertainty” in this way.25 “Eliminate the uncertainty, and participants will

tend to move away from individual profit maximizing models to a collusive one.”

26 For these

reasons, such agreements to share competitively significant information are examined closely.27 
unreasonably facilitated airfare coordination); Competitor Collaboration Guidelines at § 3.31(b). 

Possible competitive concerns arising absent an agreement (see, e.g., Stone Container Corp.,

Docket No. C-3806, Complaint, available at <www.ftc.gov/os/1998/9802/9510006.cmp.htm>

(charging invitation to collude in violation of Section 5 of the Federal Trade Commission Act, 15

U.S.C. § 45), settled by consent decree, available at

<www.ftc.gov/os/1998/9806/9510006.do.htm>, but see Stone Container Corp., Dissenting

Statement of FTC Commissioner Orson Swindle, 5 Trade Reg. Rep. (CCH) ¶ 24,390, available

at <www.ftc.gov/os/1998/9802/9510006.os.htm> (last visited Oct. 19, 2000) (stating that facts

do not support invitation-to-collude theory in this case); E.I. du Pont de Nemours & Co. v. FTC,

729 F.2d 128 (2d Cir. 1984) (discussing unilateral facilitating practices)) were only briefly

discussed during the workshop and are beyond the scope of this report. 

28

 See, e.g., Kinney (Stmt) 37 (where sellers are fragmented, online reverse auctions “can

be set up with little fear of outright supplier collusion or tacit collusion through signaling.”). See

generally Gypsum, 438 U.S. at 443 n.16 (“structure of the industry involved” can be an important

factor in determining whether information-sharing among competitors is pro- or anti-competitive).

29

 See Hal R. Varian, “Economic Scene: When commerce moves online, competition can

work in strange ways,” N.Y Times, August 24, 2000, at C2.

30

 See Container, 393 U.S. at 337 (noting relevant industry’s “dominat[ion] by relatively

few sellers” in finding information-sharing agreement violates Section 1); Competitor

Collaboration Guidelines at §§ 3.33 & n.43 (discussing importance of market share); 4.2

(establishing safety zone where market shares of the collaboration and its participants collectively

account for no more than twenty percent of relevant market or markets). 

7

a. Factors Suggesting Antitrust Concern 

Whether information-sharing agreements are indeed likely to injure competition depends

on the facts, which are likely to vary among B2Bs. Where agreements that may facilitate

anticompetitive coordination are at issue, certain key factors may shape the analysis. Each of

these factors contributes to the analysis; one must look at them together to assess any given

factual circumstances. Nevertheless, with that caveat, at least five factors, among others, are

relevant.

First, what is the structure of the market that the B2B serves? All other things being

equal, the greater the degree of concentration in the market, the greater the concern about

possible effects on competition.28 For example, under certain circumstances, greater information

flow in a B2B market with many buyers and few sellers may drive up the prices that those buyers

pay.29 Likewise, all other things being equal, the greater the share of the market controlled by the

information-sharers, the greater the likelihood of concern.30 On the other hand, low entry barriers

to the market for the goods traded on the B2B may enable new entrants to foil any chances for

information-sharing to facilitate collusion. Finally, the homogeneity of products or firms within
31

 See Container, 393 U.S. at 337 (noting relevant product’s “fungib[ility]” in finding

information-sharing agreement violated Section 1); Competitor Collaboration Guidelines at § 3.33

(noting importance of factors discussed in Section 2.1 of the 1992 DOJ/FTC Horizontal Merger

Guidelines which discusses factors relevant to likelihood of coordinated interaction). 

32 Baker 495. However, under certain circumstances, even information-sharing between

buyers and sellers can raise concerns. See, e.g., In re Lockheed Corp., 119 F.T.C. 618 (1995)

(consent order); Lockheed Corp., et al., Proposed Consent Agreement With Analysis to Aid

Public Comment, 60 Fed. Reg. 5408, 5413 (Jan. 27, 1995) (discussing proposal that certain

information that firm received from military aircraft manufacturers who purchased its military

aircraft components, not be disclosed to the firm’s division that manufactured and sold competing

military aircraft). 

33 Competitor Collaboration Guidelines at § 3.31(b); see also Gypsum, 438 U.S. at 443

n.16 (“nature of the information exchanged” can be an important factor in determining whether

information-sharing among competitors is pro- or anti-competitive). 

34

 See Krattenmaker 498-99.

35

 See, e.g., 58 Fed. Reg. 3971 (1993) (Jan. 12, 1993) (Proposed Final Judgment and

Competitive Impact Statement, U.S. v. Airline Tariff Publishing Co.). The case settled through

8

the market, the characteristics of buyers and sellers, the characteristics of typical transactions, and

the advantage a firm might gain by cheating on a price-fixing deal are additional factors relevant

to such an analysis.31 In short, to the extent that a particular market is less susceptible to

collusion, information-sharing agreements through B2Bs are likely to pose fewer collusion risks.

Second, who is sharing the information? Information shared among competitors is

generally, although not always, more likely to raise concern than information shared among noncompetitors.32

 

Third, what type of information is being shared? As the Competitor Collaboration

Guidelines point out, “[o]ther things being equal, the sharing of information relating to price,

output, costs, or strategic planning is more likely to raise competitive concern than the sharing of

information relating to less competitively sensitive variables.”

33 For example, shared information

relating to direct goods is generally more likely to generate antitrust concern than shared

information relating to indirect goods. Thus, retailers sharing information about their purchases

of lightbulbs to illuminate their stores may raise fewer concerns than their sharing information

about their direct input purchases.34

Fourth, how old is the information? All other things being equal, sharing contingent or

future pricing information is generally more troubling than sharing information about past

transactions.35 Sharing information about contingent pricing can allow competitors to signal
consent decrees that, among other things, prohibited dissemination of fares that were intended

only to communicate planned or contemplated fares or contemplated fare changes. See United

States v. Airline Tariff Publishing Co., 836 F. Supp. 9 (D.D.C. 1993) (settlement with two

defendants); United States v. Airline Tariff Publishing Co., 1994 WL 502091, 1994 WL 454730

(D.D.C. 1994) (settlement with remaining defendants). See also Rule 512-13 (indicating current

prices less troubling than future prices). Reflecting a similar judgment, Statement 6 of the 1996

DOJ & FTC Statements of Antitrust Enforcement Policy in Health Care establishes an antitrust

safety zone for the exchange of certain past pricing data (specifically, data over 3 months old) in

particular circumstances. 

36 Correia 502 (exchanging such contingent prices ought to send up a “red flag” for

enforcers); see also Proger 509 (agreement to publish future pricing “raise[s] an issue”); Rule

512-13 (future prices problematic); Jonathan B. Baker, “Identifying Horizontal Price Fixing in the

Electronic Marketplace,” 65 Antitrust L.J. 41, 51 (1996) (rapid information exchange “can

facilitate coordination even if it is what economists term ‘cheap talk,’ – that is, communication

imposing little or no costs of commitment on the parties”).

37

 See Competitor Collaboration Guidelines at § 3.31(b) (“Similarly, other things being

equal, the sharing of information on current operating and future business plans is more likely to

raise concerns than the sharing of historical information.”). 

38 Kinney (Stmt) 32. See generally Gypsum, 438 U.S. at 443 n.16 (“Exchanges of

current price information, of course, have the greatest potential for generating anticompetitive

effects and although not per se unlawful have consistently been held to violate the Sherman

Act.”). But see Correia 502 (exchange of current price information raises fewer concerns since it

is “very hard to imagine a very effective way to collude” when transactions are basically

instantaneous). 

9

potential prices to each other while preserving “the opportunity to pull those prices back if their

rivals [do not] act in a certain way.”

36 And, as discussed in the Competitor Collaboration

Guidelines, sharing information about instantaneous transactions can also raise antitrust

concerns.37 For example, in frequent, small-stake online auctions, bidders may have a chance to

learn strategic behavior and adjust their future bids accordingly.38 

Fifth, how accessible is the information other than through the B2B? All other things

being equal, sharing information that is unique to the B2B is generally more likely to raise

antitrust issues than sharing information that can be found elsewhere, and sharing information that

can be found elsewhere but only with difficulty is generally more likely to merit antitrust scrutiny

than sharing information that can be found elsewhere just as readily as it is found on the B2B. 

One panelist’s comments illustrated this point well. The panelist, the head of a foreign currency

B2B, stated that until the advent of B2Bs, suppliers in the market that her B2B serves had

“typically only known about a small sliver of the customer transactions that they were particularly
39 Mirek 188. 

40 Mirek 188. 

41 Mirek 199.

42 Mirek 200. See also Currenex (Stmt) 2. 

43

 Cf. Cooper 506 (raising this issue in general terms).

44

 See supra note 10 to Part 3. But see Mitnick 519-20, 546-47 (stating that efficiencies

may be sacrificed when antitrust concerns prevent owner-participants from using the B2B both as

a buyer and as a seller in the same market, but speculating that some architectural solution may be

able to solve the problem); cf. energyLeader (Stmt) 14 (to avoid such problems, energyLeader

10

bidding on.”

39 She stated that now, however, suppliers who own a B2B in this market (and who

thus would appear to compete with hers) are in a position to discover “every transaction that a

customer is involved with, whether they participate [in that transaction] or not.”

40 B2Bs have also

introduced an “unprecedented ability to monitor prices in realtime” in that market.41 This new

ability of competing sellers to learn “each other’s bids and prices on every trade instantly,” she

said, raises a significant collusion concern.42

Exclusivity policies may also aggravate collusion risks. If, notwithstanding the advantages

of B2B participation, B2B participants have the ability and incentive to trade secretly outside the

B2B, they may undermine a collusive scheme. Exclusivity could shut off the opportunity to cheat. 

Moreover, it may enhance the value of the information being shared. For example, if Seller 1 can

discover what Seller 2 sold on a B2B, and also knows that Seller 2 is required by the B2B’s

exclusivity policy to do all its selling on that B2B, then Seller 1 knows quite a bit about Seller 2's

selling practices. By contrast, if there is no exclusivity policy, Seller 2 might commit only a small

fraction of its sales to the B2B, greatly reducing the value of the information that Seller 1 could

glean from the B2B. (This is also true of buyers who purchase through the B2B.)43

b. Efficiencies

Is the information-sharing practice reasonably necessary to promote certain efficiencies? 

How might information sharing enhance competition? In some cases, information-sharing may

promote competition or make businesses run more efficiently. It is, after all, the informationsharing capabilities of B2Bs – particularly their powers to let trading partners share information

with each other – that help enhance price transparency by letting buyers solicit more bids more

quickly, by facilitating comparison-shopping, and by giving sellers and buyers greater and cheaper

access to more potential trading partners. Likewise, it is the information-sharing properties of

B2Bs that make supply-chain management possible. These are but a few examples of the ways

that information-sharing can enhance efficiencies and competition.44 In practice, the import of
sites “in some cases” deny sellers access to pricing information of other sellers in the same

market).

45 In some matters, the FTC has determined that provisions to limit the exchange of

information can help address competitive concerns. See, e.g., In re Eli Lilly and Company, 120

F.T.C. 243 (1995); In re Martin Marietta Corp., 117 F.T.C. 1039 (1994); In re General Motors,

103 F.T.C. 374 (1984).

46

 See, e.g., Kinney (Stmt) 39 (discussing FreeMarkets); see also energyLeader (Stmt) 8

(designer of the online auction can determine whether to hide bidders’ identities and/or bids). 

47

 See Stojka 381-83 (anonymous online auction); Mashinsky 272-73 (price information

for specific transactions available on an anonymous basis). 

48

 See Kinney 81-82, 88.

49

 See energyLeader (Stmt) 14 (depending on the software used, a seller in an online

catalog may be prevented from accessing other sellers’ price information).

50

 See Phillips 300-01 (discussing online catalogs permitting some data to be seen only by

certain buyers); Verloop 380 (discussing online catalog that prevents buyer from seeing what

seller is charging other buyers).

11

such effects would depend on the facts of the particular setting in which they were presented. 

c. Avoiding Antitrust Risk

In light of any such efficiencies, there would also be consideration of whether they could

be achieved through a practical, significantly less restrictive alternative. Workshop participants

identified many possible mechanisms for doing so. For example, a B2B may restrict the

information available to certain participants in online auctions or exchanges.45 In “fragmented

global market[s],” one B2B’s auction server can be programmed to allow suppliers access to

more information, and in “more concentrated markets,” it can allow them access to less

information.46 In some B2Bs, a seller can only see other sellers’ prices but not their names,47 or

can see only where its latest bid ranks among other sellers’ bids.48 Online catalogs may also be

segmented so that sellers cannot see the prices quoted by their competitors49 and buyers cannot

see what other buyers are being charged.50

B2Bs may also use nondisclosure and confidentiality agreements. Buyers and suppliers

using FreeMarkets work under nondisclosure agreements that require potential suppliers to keep a

buyer’s proprietary RFQ information confidential, for example, and MetalSite gives its employees

antitrust training and requires them to sign agreements relating to confidentiality and
51

 See Kinney 186; Stewart 104. But cf. Chen 187 (nondisclosure and confidentiality

agreements will take time to develop). 

52 Roberts 384. But see Currenex (Stmt) 2 (“there is no firewall that can be constructed

to separate board members from the information required to fulfill their fiduciary responsibility

vis-a-vis the exchange”).

53 Sunder 465-66; see also Ernst & Young (Stmt) 2; Mark Del Bianco, “Meet the Old

Boss, Same As the New Boss: Emerging Antitrust Issues in the Second Wave of B2B ECommerce,” ABA Antitrust Section Internet Committee Newsletter, Summer 2000

(forthcoming) (discussing source code audit provisions). 

54 Bloch & Perlman (Stmt) 10 (suggesting that improper information sharing could be

reduced by having a marketplace promulgate “strict antitrust and confidentiality guidelines that

provide, among other things, that improper sharing of competitive information will result in severe

penalties, including possibly requiring equity members to sell their interests in the exchange and/or

prohibiting the offending party(ies) from being able to conduct business on the exchange”). 

55

 Compare Bloch & Perlman (Stmt) 10 (pass codes and firewalls can manage such

information-sharing concerns); Mitnick 546-47 (suggesting that firewalls or other architectural

software solutions would provide sufficient protection); Correia 502-03 (firewalls “seem to work

pretty well”) with Mirek 189 (traditional firewalls likely to be particularly ineffective because of

necessary integration of supplier’s and exchange’s computer information systems), Currenex

(Stmt) 2-3 (firewalls cannot ameliorate problems posed by seller consortiums, including

“increased barriers to entry, leveraging effects and a net decrease in the intense level of

competition that currently exists among the participating sellers”). 

12

noncompetition.51

B2Bs may develop practices that keep sensitive information from board members

employed by B2B participants. At the workshop, for example, one B2B founder stated that he

planned to have his B2B require that its board of directors not receive information from the

exchange.52

Finally, some participants suggested the use of “audit mechanism[s]” that let participants

know whether the B2B’s rules are being followed,53 and the use of penalties for violating

operating rules.54 

Would such measures adequately safeguard against the anti-competitive harm? The

record reflected a variety of views on that score.55 In this regard, it may help that B2Bs often

have inherent incentives to make sure such measures do work, since the participants who use the
56 See, e.g., Arnold 184; Krattenmaker 499-500; Mirek 230-31; Leahy (Stmt) 3.

57 Foer (Stmt) 2 (oligopsony); Keller & Heckman (Stmt) 3; OESA (Stmt) 8 (aggregating

purchase power is the biggest competitive threat B2Bs pose); Enron (Stmt) 3 (raising concern

that Internet “exchange/consortium or its operators” could “unreasonably reduce input prices”). 

58 Areeda, Hovenkamp, & Solow, Antitrust Law (1995) at ¶ 574. See generally

Mandeville Island Farms v. American Crystal Sugar Co., 334 U.S. 219 (1948); National Macaroni

Manufacturing Ass’n v. FTC, 345 F.2d 421 (7th Cir. 1965); United States v. Rice Growers Ass’n,

1986-2 Trade Cas. (CCH) ¶ 67,288 (E.D. Cal. 1986). One workshop panelist stated that in a

monopsony scenario, “[t]he supply curve has to be upward sloping.” Warren-Boulton 537.

59 DOJ & FTC Horizontal Merger Guidelines § 0.1 (1992, revised 1997). 

60 See, e.g., Roger D. Blair & Jeffrey L. Harrison, Antitrust Policy and Monopsony, 76

Cornell L. Rev. 297, 297-98, 301-303 (1991). Competitive concerns extending beyond classical

monopsony were only briefly discussed during the workshop and are beyond the scope of this

report. 

61

 See, e.g., Kinney (Stmt) 11 (group buying can be difficult in practice).

62 Keller & Heckman (Stmt) 5. 

13

marketplace typically do not want their competitively sensitive information disclosed to anyone.56

2. Monopsony 

Several participants also voiced concerns that B2Bs could allow the exercise of

monopsony power.57 Monopsony is “market power exercised on the buying side of the market,”

power that lets a buyer or buyer group “reduce the purchase price by scaling back its

purchases.”

58 Thus, the Horizontal Merger Guidelines provide that “[m]arket power . . . 

encompasses the ability of a single buyer (a "monopsonist"), a coordinating group of buyers, or a

single buyer, not a monopsonist, to depress the price paid for a product to a level that is below the

competitive price and thereby depress output. The exercise of market power by buyers

("monopsony power") has adverse effects comparable to those associated with the exercise of

market power by sellers."59 Under the "classical theory of monopsony," a single buyer (or a group

of firms acting as a single buyer) in the market seeks to lower the price it must pay for a given

input through the means of reducing its purchases of that input.60

By no means do all B2Bs facilitate joint purchasing. Indeed, group buying is difficult to

execute, some panelists stated.61 Perhaps because of this, many B2Bs merely enable participants

to purchase parts individually, a practice that is no more controversial than firms “using the same

telephone network to purchase parts today.”

62

 
63 Correia 536. 

64

 Cf. Warren-Boulton 531 (describing two-round auctions).

65

 See OESA (Stmt) 8.

66

 See Correia 536 (noting that such coordination through signaling mechanisms might be

difficult).

67

 See Warren-Boulton 529-30, 534. See also Hovenkamp, Antitrust Law (1999) at

¶ 2135.

68

 See Salop 534-35. See also Hovenkamp, Antitrust Law (1999) at ¶ 2135.

69

 See, e.g., Foer (Stmt) 2 (oligopsony concerns arise when “the leading buyers in an

industry can utilize an electronic market place as a kind of buyers’ consortium”). 

70 Warren-Boulton 537. The Competitor Collaboration Guidelines provide that, “[a]bsent

extraordinary circumstances, the [antitrust enforcement a]gencies do not challenge a competitor

collaboration when the market shares of the collaboration and its participants collectively account

for no more than twenty percent of each relevant market in which competition may be affected. 

The safety zone, however, does not apply to agreements that are per se illegal, or that would be

challenged without a detailed market analysis.” Competitor Collaboration Guidelines at § 4.2; see

also Bloch 12 (applying 20% safety zone to monopsony concerns). 

14

B2Bs can, however, be used by a buying group with adequate market share to coordinate

the reduction of purchases. Such coordination could be done expressly,63 through an agent,64 or

perhaps through consulting services that permit coordination of input purchases. One workshop

participant noted that such coordination could also be facilitated by certain B2B informationsharing practices,65 but this might prove difficult in practice.66 Exclusivity policies that require

that the group’s members purchase through the group may make the exercise of monopsony

power easier. Such exclusivity policies could help prevent the group’s members from “cheating”

by buying, through outside sources, more than they agreed to buy.67 Another panelist, however,

stated that such rules could contribute to achieving other efficiencies.68

Panelists stressed the importance of asking whether the buying group in question accounts

for a sufficient share of the buying market such that its purchases influence the price of the inputs

bought.69 Indeed, identifying whether the buyer or buying group buys a sufficiently large share of

the inputs in the market to make a difference should be “a first screen,” according to one

panelist.70 For this reason, the joint purchasing of indirect inputs such as MROs is generally less

likely to raise concerns than joint purchasing of direct inputs. Joint buyers are generally less likely

to dominate the market for MROs, which companies in many other industries will often buy, than
71 Warren-Boulton 537; Krattenmaker 498-99 (purchasing of indirect goods generally

poses fewer concerns than purchasing of goods for resale). See also supra at Part 3.A.1.a (noting

similar point with respect to information-sharing).

72

 See, e.g., Kim 227 (discussing how equalFooting wins treatment as a national account

by serving as a “virtual distributor” for small buyers); Kafka 228 (aggregation permits purchasing

at truckload prices like a distributor). Cf. Kinney (Stmt) 11-12 (volume purchasing only works in

those industries in which suppliers add capacity in large increments).

73 Correia 536. 

74 Competitor Collaboration Guidelines at § 3.35 n.50. 

75 Competitor Collaboration Guidelines at § 3.35 n.50. 

76 Bloch & Perlman (Stmt) 12.

77 OESA (Stmt) 5, 8.

78 OESA (Stmt) 5.

15

they are the market for direct inputs, which companies in few other industries may buy.71

Buyer groups driving prices down through monopsony power are not to be confused with

buyer groups winning better prices through increased efficiencies, such as by enabling their

suppliers to save money by selling to the group. In such cases, there may well be savings to

suppliers warranting quantity discounts.72 Indeed, one participant suggested that if buyers

representing a small share of the buying market are collectively winning a better price, efficiencies

– not monopsony – may well be responsible.73 

One concern relevant to the monopsony issue is whether new entry could cure the

potential injury to competition that a buying group might pose. As stated in the Competitor

Collaboration Guidelines, if collaborators exercising monopsony power reduce their purchases,

“they may create an opportunity for new buyers to make purchases without forcing the price of

the input above pre-relevant agreement levels.”

74

 These new entrants could thus “deter[] or

counteract[]” the power of the monopsonist.75

Finally, the panelists discussed remedies that could be adopted should monopsony indeed

prove a valid concern. One workshop participant suggested methods that would keep the market

share of the buying group low, for example, by restricting membership in the buying group once

the group’s purchases reached 30% of the market.76 Another workshop participant, concerned

that certain B2B information-sharing practices could facilitate monopsony coordination,

suggested remedies that limit the flow of that information,77 such as firewalls, anonymity, the

“isolation” of management, or ensuring management’s independence.78 This participant also
79 OESA (Stmt) 5.

80

 See van Breen 205 (Worldwide Retail Exchange open to all retailers and suppliers); 

Arnold 220 (electric utility exchanges are open); Dupont 303-04 (marketplaces are totally

inclusive); Verloop 346 (BuyProduce.com is “wide open”); Bloch & Perlman (Stmt) 6-7 (most

B2B marketplaces plan to create “open platform[s]”).

81

 See, e.g., Mirek 200 (citing the “real potential for owner suppliers to exclude nonowner suppliers” from the marketplace); Sandhu 295-96 (suggesting that marketplace participants

may wish to condition their participation on denial of access to competitors); Heymann 368-69

(the more concentrated an industry, the more “gatekeeping” efforts evolve, reflecting differences

among major participants); Glover 473 (expressing concern that small businesses could be

excluded); Spectrum Meditech (Stmt) 2 (expressing concern over possibility that B2B partially

owned by competitors will exclude a smaller rival).

82

 Compare Foer (Stmt) 2 (fear that owners will disadvantage outsiders by combining

high user fees with rebates to owners) and Bhatt 287 (fear that consortium run by large suppliers

will “bid” small suppliers “out”) with Worldwide Retail Exchange (Stmt) 5 (Worldwide Retail

Exchange “will be open, on equal terms, to all -- suppliers and purchasers alike. User fees will be

equal, regardless of any ownership position in the WWRE.”).

16

suggested “limiting (or extending) equity ownership in the exchange,” so that, for example, sellers

could gain ownership stakes in – and some control over – a buyer-owned B2B at risk for

monopsony.79

3. Exclusion

As discussed in Part 1, many B2B e-marketplaces are being set up using the consortium

model, with ownership by several of the major players in a particular industry. If these B2Bs yield

substantial efficiencies, the owners’ competitors may well wish to use the B2B services. Several

panelists raised the issue of whether there may be circumstances under which participant-owners

of the B2B could undermine competition by denying their competitors access to the B2B or by

otherwise disadvantaging those competitors in their use of the B2B. As discussed below, such

treatment might raise the competitors’ costs of doing business and limit their ability to provide

effective competition in markets for the goods traded on the B2B or for goods derived therefrom.

The workshop record yielded little evidence of current exclusion from B2Bs. To the

contrary, several panelists stated that their B2Bs would be open to all comers.80 The record,

however, contains warnings regarding the potential for exclusion81 and reveals widespread

concern about possibilities for disadvantageous treatment of the owners’ rivals, which could take

various subtle forms short of outright access denials. For example, owners might receive rebates

of fees that are unavailable to their rivals.82 Information might be presented in ways that give
83

 See, e.g., Kafka 195-96 (recognizing importance that information not be skewed but

stressing that bias is not inherent in seller ownership or governance); Walsh 365-68 (B2Bs must

not withhold information from buyers or bias the presentation in a way that prevents buyers from

being empowered); Mitnick 550 (presentation bias a legitimate issue).

84 OESA (Stmt) 6; Internet Public Policy Network (Stmt) 1; Keller & Heckman (Stmt) 3-

4, 8. But cf. Phillips 324 (rivalry among large suppliers that own an exchange will ensure

adoption of neutral rules).

85 Currenex (Stmt) 3.

86 In addition to denying the rival the cost-saving benefits of B2B participation,

exclusionary treatment may impair a rival’s ability to continue dealing with suppliers or customers

who are committed to a given B2B. See Bloch & Perlman (Stmt) 6; OESA (Stmt) 6. 

Consequently, “exclusivity” provisions of the type discussed in the next section, which work to

bind a supplier or purchaser to a particular B2B, may raise the costs of any rival barred from using

that B2B. 

87

 See, e.g., Lie v. St. Joseph Hosp., 964 F.2d 567, 570 (6th Cir. 1992) (loss of personal

income experienced by a physician excluded from a hospital not sufficient to demonstrate injury to

competition); Bhan v. NME Hosps., 929 F.2d 1404, 1414 (9th Cir.) (exclusion of one nurse

anesthetist from one hospital not enough to demonstrate actual detrimental effects on

competition), cert. denied, 502 U.S. 994 (1991). 

17

preference to marketplace owners.83 Discriminatory operating rules or disadvantageous access to

electronic interchange standards could leave rivals with reduced functionality or higher costs.84

As one comment, discussing currency exchanges, explained:

It is also important to examine the "rules of the game" to determine whether the exchange

has imposed rules that subtly tilt the playing field in favor of the owners/sellers. For

example, there are exchanges that are theoretically open to a multitude of players, but

close bidding after a limited number of bids have been received. These systems thus favor

those sellers with better integration into the exchange's systems, typically those with the

greatest ownership stake in the exchange itself. By arbitrarily limiting bidding or engaging

in display bias, such exchanges . . . are using the purportedly neutral "rules" to exclude

potential competitors (e.g. non-exchange partners) and avoid competing on price or

another objective standard. . . . It would also be very easy for the top market players to

manipulate smaller market participants by blocking access or offering access on unequal

terms.85

Denying or disadvantaging competitors in their access to a B2B e-marketplace could raise

their costs or maintain them above levels that otherwise would prevail.86 Typically, though, this

alone has not been viewed as an antitrust violation.87 Rather, antitrust analysis generally treats
88 In some settings exclusionary agreements among competitors may be per se unlawful

group boycotts. See, e.g., Northwest Wholesale Stationers v. Pacific Stationary & Printing, 472

U.S. 284, 294, 298 (1985) (requiring a showing of “market power or unique access to a business

element necessary for effective competition” as a prerequisite for per se condemnation and noting

that in per se unlawful group boycotts “the practices were generally not justified by plausible

arguments that they were intended to enhance overall efficiency and make markets more

competitive”); Federal Trade Commission v. Toys “R” Us, 221 F.3d 928 (7th Cir. 2000). This

Report concentrates on the factors relevant for determining when exclusionary B2B conduct

might be anticompetitive under the rule of reason. The legal principles delineating per se unlawful

exclusion are beyond its scope.

89 326 U.S. 1, 13, 18-19 (1945).

90 224 U.S. 383, 397, 411 (1912).

91 Otter Tail Power Co. v. United States, 410 U.S. 366, 378 (1973) (invoking Section 2

of the Sherman Act, 15 U.S.C. § 2). 

18

exclusion as an antitrust problem when it harms competition, not merely competitors.88 

That approach has long been followed by the courts. When the Supreme Court has

condemned agreements among competitors to deny access to their jointly controlled activities,

harm to competition has been clearly demonstrable. For example in Associated Press v. United

States, where the Court condemned a rule that permitted members to block competing

newspapers from using the wire service, it concluded that the arrangements for blocking access

were “designed to stifle competition” and were “aimed at the destruction of competition,” and

that they had the effect of “seriously . . . limit[ing] the opportunity of any new paper to enter”

numerous local markets.89 Moreover in United States v. Terminal Railroad Ass’n, the Court

imposed requirements to ensure equal access to a railroad association’s terminal facilities, after

finding that, as a practical matter, it was “impossible for any railroad company to pass through, or

even enter St. Louis . . . without using the facilities entirely controlled by the Terminal

Company.”

90 In a case involving single-firm conduct, the Court condemned an electric utility’s

refusal to sell or transmit electric power to proposed municipal systems that threatened to

“erod[e] its monopolistic position.”

91

On the other hand, the courts have not hesitated to reject challenges to denials or

limitations on access in settings when they have not found harm to competition. For example, the

U.S. Court of Appeals for the Tenth Circuit found no illegality when a subsidiary of Sears,

Roebuck & Company, proprietary issuer of Discover Card, was denied membership in Visa USA;

it determined that the evidence was insufficient to show market power, observed that the

exclusionary rule could have efficiency justifications, stressed that “[t]he Sherman Act ultimately

must protect competition, not a competitor,” and concluded that no harm to consumers had been
92 SCFC ILC, Inc. v. Visa USA, Inc., 36 F.3d 958, 969-72 (10th Cir. 1994), cert. denied,

515 U.S. 1152 (1995).

93 Alaska Airlines v. United Airlines, 948 F.2d 536 (9th Cir. 1991), cert. denied, 503 U.S.

977 (1992). The case involved allegations that each defendant had violated Section 2 of the

Sherman Act. The court indicated that standards for assessing access denial under Section 2 are

more stringent than those required under Section 1. Id. at 542 (citing Phillip Areeda, Essential

Facilities: An Epithet in Need of Limiting Principles, 58 Antitrust L.J. 841, 844-45 (1990)).

94 14 C.F.R. Part 255 (establishing requirements for the operation by air carriers of

computer reservation systems “so as to prevent unfair, deceptive, predatory, and anticompetitive

practices in air transportation”). The reviewing court rejected a challenge to the rule against

presentation bias under an analysis focused on deception, without reaching the competition issues. 

See United Air Lines v. Civil Aeronautics Board, 766 F.2d 1107, 1112-13 (7th Cir. 1985). It also

rejected challenges to a rule against CRS price discrimination and to a companion rule prohibiting

deletion of information about rivals’ connecting flights, finding that the Board’s competition

analysis was not arbitrary or capricious. Id. at 1113-16. The court viewed the governing

transportation statute as “essentially a copy of section 5 of the Federal Trade Commission Act,”

the transportation statute’s “progenitor.” Id. at 1112, 1114.

95 For a comprehensive introduction to raising-rivals’-cost theory, see Thomas G.

Krattenmaker & Steven C. Salop, Anticompetitive Exclusion: Raising Rivals’ Costs to Achieve

Power over Price, 96 Yale L. J. 209 (1986). 

19

shown.92 In a case involving computer reservation systems (“CRSs”), in many ways forerunners

of today’s B2Bs, claims that two airline owners of proprietary computer reservation systems

unilaterally had denied their competitors reasonable access to an “essential facility” by charging

airlines $1.75 per booking were rejected on grounds that the CRS operators lacked power to

eliminate competition in the downstream air transportation market.93 A potentially more troubling

set of allegations about CRS operations–that flights of owning airlines were listed on the CRS

screens before their competitors’ flights–had been resolved years earlier, when the Civil

Aeronautics Board promulgated regulations requiring non-discriminatory treatment.94

In recent years, a considerable body of scholarship has sought to make operative the

mandate that antitrust analysis focus on harm to competition.95 That literature presents a useful 

framework for analysis of the competitive effects of conduct that raises rivals’ costs and thereby

impairs downstream competition. It examines, sequentially, two markets: the market for inputs,

from which the rival is excluded, and the market for outputs, in which the rivals’ ability to

compete is impaired. 

In the context of B2Bs, analysis would focus first on the market for services rendered by

the B2B. In that connection it would consider the extent of the disadvantage that likely would

ensue from denying or limiting rivals’ access to the B2B, as well as the substitutes to which the
96

 Cf. Competitor Collaboration Guidelines at § 3.36 (discussing analysis of efficiencies in

competitor collaborations outside the context of exclusionary conduct). 

97

 See Clark 364 (consortium B2Bs are more likely than others to skew functionality in

favor of the owners, but few are up and running now).

98

 See, e.g., Mirek 200-01 (real potential to exclude non-owners from marketplace

altogether in light of network effects that could make marketplace an essential facility); OESA

20

disadvantaged firms could turn to avoid or mitigate the disadvantage. But this would only inform

us about harm to the disadvantaged competitor. To show harm to competition, we would need to

consider the likely impact on competition in the markets in which the excluded firms participate. 

Finally, if anticompetitive harm were likely, analysis would ask whether the access denial was

reasonably necessary for achieving procompetitive benefits that likely would offset the

anticompetitive harm.96

For example if a consortium of widget manufacturers formed a B2B for purchasing widget

components and excluded an up-and-coming, new widget manufacturer from buying through their

B2B, the analysis would inquire first how much this raised the excluded firm’s costs and whether

the firm could turn to substitute sources to minimize any harm. It then would inquire into the

likely competitive consequences downstream, in the market for widgets. Even if the excluded

firm’s costs rose, there might be no downstream effect if competition in the widget market were

otherwise vigorous. Ultimately, the inquiry would focus on the likely overall competitive effect in

the widgets market, taking account of both anticompetitive harms and procompetitive benefits

from the exclusion. 

These inquiries are likely to be highly fact-specific in application. Indeed, exclusionary

incentives will not even be present in many settings. A B2B owned and operated by firms or

individuals independent of those who buy or sell through that marketplace may lack any incentive

to exclude or disadvantage any participants. In contrast, other B2Bs, such as those owned or

operated by consortia of industry members may have incentives to exclude.97 Where exclusion is

an issue, certain key factors may shape the analysis. Questions to focus upon include:

(1) Is the B2B the only way the product – or adequate substitutes for it – can be bought

or sold at comparable prices? Alternatively, could another B2B or a private network

based on Internet infrastructure readily be used, or are there offline markets that could be

used instead? Would the alternatives be as efficient, or does the excluding B2B offer

special advantages? 

If the excluded rivals can readily reach suppliers or buyers through alternative

mechanisms at comparable costs, they can avoid the harm. Several panelists, however,

suggested that strong network efficiencies in an incumbent marketplace might make

alternatives unsatisfactory.98 Their theme was familiar: the 1996 Staff Report following
(Stmt) 6-7 (dominant B2B could become an essential facility; network effects must be taken into

account). 

99

 Anticipating the 21st Century: Competition Policy in the New High-Tech, Global

Marketplace (1996) (“1996 FTC Staff Report”), ch.9 at 8. Similarly, the courts in some settings

have recognized that excluding a rival from a joint venture benefitting from substantial network

efficiencies may harm competition. See, e.g., Thompson v. Metropolitan Multi-List, Inc., 934

F.2d 1566 (11th Cir. 1991), cert denied, 506 U.S. 903 (1992); United States v. Realty Multi-List,

629 F.2d 1351 (5th Cir. 1980). 

100

 See Keller & Heckman (Stmt) 6 (recommending that Internet sites be evaluated like

other retail formats in defining the relevant product market).

101

 See, e.g., Harting 372-73 (“[C]oncerns that owners will manipulate the presentation of

data or prices are overblown. These are ruthlessly competitive markets” since competitor B2Bs

face “low” entry barriers and since “buyers can search, almost for free, for other venues where

they can purchase”; a marketplace that excluded participants or biased data presentation “would

be punished very, very quickly”). See supra Part 1.C.7.

102

 See, e.g., Clark 363 (difficult to start an independent B2B once a consortium B2B is

already present); Brodley 542, 576 (same); Blankenhorn (Stmt). See supra Part 1.C.7 and infra

Part 3.B.3. 

21

the FTC’s Hearings on Global and Innovation-Based Competition similarly reasoned that

network efficiencies “magnify any disadvantages of exclusion and tend to burden

intersystem competition” and concluded that “demand-side scale economies associated

with networks warrant a heightened degree of scrutiny in assessing denials of access to

joint venture membership.”

99 That scrutiny is likely to be highly fact-intensive, requiring

consideration of the extent to which buyers and sellers remain available to support costeffective B2B alternatives and the extent to which other trading mechanisms can substitute

for B2B e-marketplaces. As explained in one comment, the latter inquiry may entail a

look at the types of services offered, the interchangeability of use for participants, and the

cross-elasticity of demand between alternative trading mechanisms.100

(2) Will effects on rivals’ costs be deterred or counteracted by entry of alternative

marketplaces or by counter-strategies that rivals might pursue? As discussed above in

Part 1.C.7, the workshop record on the ease, and hence the curative power, of entry was

mixed. Some argued that entry would quickly provide ready B2B alternatives for

disadvantaged rivals.101 Others questioned the ease of entry in these markets.102

(3) If the B2B were in fact the only way the product or adequate substitutes could be

bought or sold at comparable prices, would denial or limitation of access give the B2B’s

participants the power to raise or maintain the price of the products they sell above what
103 Loevy 306.

104 Mitnick 550-51. For example, it might be suggested that firms that begin participation

only after a B2B has proven successful should pay a higher membership fee than a firm that bore

greater risk by joining earlier. See generally 1996 FTC Staff Report, ch. 9 at 23-26.

105

 Cf. Competitor Collaboration Guidelines at § 3.36(b).

106

 See, e.g., Bloch & Perlman (Stmt) 11 (distinguishing antitrust concerns in market for

marketplaces from those in markets for products in which the marketplace participants operate). 

22

otherwise likely would prevail? This would be a function of the role of the disadvantaged

participants in maintaining downstream competition. If the excluded rivals were important

to maintain effective downstream competition, exclusionary conduct that significantly

raised their costs would cause anticompetitive harm. The analysis here would consider

factors such as downstream market concentration, theories of unilateral and coordinated

anticompetitive effects in the downstream markets, and downstream entry, as well as any

unique competitive significance of the excluded firms. The workshop record did not delve

into the likelihood of anticompetitive effects in any particular downstream market, and this

would have to be analyzed in fact-specific terms.

(4) What are the efficiencies of the exclusion? How might exclusion enhance

competition? One panelist stated that some B2Bs seek to differentiate their marketplace

from competitors by limiting participants to select, “qualified sellers.”

103 Another panelist

stressed that some differences in treatment may be warranted as a means of dealing with

free riding by non-owner participants.104 In practice, of course, the significance and

cognizability of efficiency claims would be analyzed in the context of particular factual

settings and would include consideration of any practical, significantly less anticompetitive

alternatives to the exclusion.105

B. Market for Marketplaces

1. The Nature of Marketplace Competition

To this point, analysis has focused on possible competitive concerns in the markets for

goods traded on, or derived from goods traded on, B2Bs. Now we shift our focus to the

emerging competition for the provision of B2B services. Just as competition issues can arise in

connection with other business-support activities, such as commercial telephone service or

commercial Internet access, competition in the market for marketplaces raises its own set of

antitrust concerns.106 B2Bs provide and charge for business services, and antitrust has a role in
107 References to the “market for marketplaces” are not intended to suggest that the

relevant antitrust market necessarily is limited to B2B e-marketplaces. In theory, more traditional

alternatives, such as EDI connections, could remain competitive constraints. Delineating the

relevant antitrust market would proceed case-by-case under general market definition principles. 

See Competitor Collaboration Guidelines at § 3.32; Horizontal Merger Guidelines at §§ 1.1 and

1.2. 

108

 See, e.g., Simkins 409; First 553; Cooper 571; Currenex (Stmt)1; OESA (Stmt) 6-7. 

109 B2Bs, of course, also use practices other than exclusivity to attract volume – they try

to offer the best services or functionality. See, e.g., Heymann 388; Simkins 408. Such practices

are procompetitive and do not raise antitrust concerns. 

110

 See, e.g., Brodley 542 (“to the extent that . . . dominant factors of the industry have

ownership in the exchange, then they’re going to be less interested in participating in another

exchange . . . [and this] could restrain the ability for other exchanges to develop”), 576; Baker

579-80 (over-inclusive ownership in incumbent B2B will make it hard for rival to get going); Foer

(Stmt) 2 (“By being designed to be overly large, the joint venture may make competition with it

23

maintaining competition in the market for marketplaces.107 

The workshop demonstrated that we are in an early, but potentially critical stage of

development of that market. Determinations made at the outset may shape B2B competition for

years ahead. That competition likely will be affected both by the nature and magnitude of

network effects in the market for marketplaces and by marketplace practices employed by the

incumbents. 

Specifically, several panelists expressed concern that B2Bs may undermine the

development of effective B2B competition by improperly encouraging or requiring buyers or

sellers, including those holding B2B ownership interests, to deal with them to the exclusion of

others.108 As discussed in Part 1.C.7 above, B2Bs may use a variety of carrots (profit interests or

rebates or revenue-sharing devices in return for commitments to achieve certain volume levels) or

sticks (minimum volume or minimum percentage requirements, bans on investment in other B2Bs,

up-front membership fees or required software investments, or pressure on suppliers and buyers)

to capture business. These exclusivity practices impose switching costs in terms of benefits to

forgo or penalties to pay if a participant chooses to use or to support another B2B. In light of the

potentially powerful network effects at work in B2B contexts, see supra Part 1.C.7, exclusivity

practices warrant close attention as potential catalysts for market domination. Of course, to the

extent they also give rise to efficiencies, the practices may prove procompetitive overall, but that

merely highlights the need for taking a close look.109

Some panelists warned that even without overt exclusivity practices, over-inclusive B2B

ownership by a consortium of large industry members could raise similar concerns.110 To the
impossible.”).

111

 See Mitnick 547 (stressing importance of asking where ownership incentives lead); see

also Krattenmaker 546 (analogizing the necessary inquiry to merger analysis). 

112 United States v. Columbia Pictures Industries, 507 F. Supp. 412 (S.D.N.Y. 1980)

(preliminarily enjoining the joint venture), aff’d mem., 659 F.2d 1063 (2d Cir. 1981). The U.S.

Court of Appeals for the 10th Circuit recently registered similar concerns in reinstating allegations

based on an alleged group boycott. There, a group of archery manufacturers, in joining to form a

new trade show, had agreed to withhold their business from the only competing trade show. The

court concluded that the facts alleged by plaintiffs stated claims against the agreement under

Sections 1 and 2 of the Sherman Act. See Full Draw Productions v. Easton Sports, Inc., 182 F.3d

745 (10th Cir. 1999). 

113 North Am. Soccer League v. National Football League, 670 F.2d 1249 (2d Cir.), cert.

denied, 459 U.S. 1074 (1982).

24

extent that ownership interests yield incentives that result in de facto exclusivity, much the same

analysis outlined below may apply in evaluating the formation or consolidation of consortia B2Bs. 

However, as one panelist explained, the likely effects of the incentives derived from holding an

ownership interest could vary from setting to setting and would have to be explored through

factual inquiry.111

2. Case Law

The exclusivity practices at issue may attach horizontally among competitors who

establish a B2B or they may attach vertically to suppliers or customers of the B2B founders. 

Different strains in the law have developed for the different settings, but in each instance the

ultimate inquiry is the actual or likely effect on competition. In the horizontal context, an

agreement among competitors to refrain from dealing with a rival to their B2B potentially raises

issues as a concerted refusal to deal. Courts have reached divergent conclusions in different

factual settings as to likely effects on competition of such horizontal arrangements. For example,

when four major motion picture studios established a pay television network and agreed to supply

certain films exclusively to that network for nine months, the mechanism for pricing the films and

the 9-month exclusivity requirement were found likely to harm competition.112 Moreover, an

agreement among members of the National Football League to prohibit NFL owners from holding

ownership interests in teams in other major professional sports leagues was found unlawful under

the rule of reason.113 On the other hand when a group of soft drink bottlers entered a joint

venture to build and operate a facility to produce plastic bottles and agreed to purchase 80% of

their bottle requirements from their joint venture, the court found no evidence of actual or
114 Sewell Plastics, Inc. v. Coca-Cola Co., 720 F. Supp. 1196, 1217-20 (W.D.N.C. 1989)

(finding insufficient market power to cause undue foreclosure and concluding that defendants’

supply contracts were reasonably justified means for achieving procompetitive purposes), aff’d

per curiam, 1990-2 Trade Cas. (CCH) ¶ 69,165 (4th Cir. 1990), cert. denied, 498 U.S. 1110

(1991). 

As discussed in n.88 above, some concerted refusals to deal are per se illegal. See also

U.S. Healthcare, Inc. v. Healthsource, Inc., 986 F.2d 589, 593-94 (1st Cir. 1993). The line

between per se and rule of reason analysis in these contexts is particularly murky, compare

Columbia Pictures, 507 F. Supp. at 427-30 (exclusivity restriction likely a per se unlawful group

boycott) with Worthen Bank & Trust Co. v. National BankAmericard Inc., 485 F.2d 119 (8th Cir.

1973) (exclusivity rule preventing banks issuing credit cards in one credit card network from

becoming members in a competing network not per se unlawful), cert. denied, 415 U.S. 918

(1974), and raises issues beyond the scope of this Report. 

115 Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320, 329 (1961). As four Justices

explained in a subsequent, concurring opinion, “[e]xclusive-dealing arrangements may, in some

circumstances, create or extend market power of a supplier or the purchaser party to the

exclusive-dealing arrangement, and may thus restrain horizontal competition.” Jefferson Parish

Hospital District v. Hyde, 466 U.S. 2, 45 (1984) (O’Connor, J. concurring). The concurring

Justices advocated an analysis focused on “the number of sellers and buyers in the market, the

volume of their business, and the ease with which buyers and sellers can redirect their purchases

or sales to others.” Id.

25

probable harm to competition.114

To the extent the exclusivity practices are purely vertical, in that they attach only to B2B

users who are customers or suppliers of the B2B owners, the line of cases analyzing vertical

exclusive dealing arrangements under Section 1 of the Sherman Act and Section 3 of the Clayton

Act should be added to the mix. As with the examples of exclusion discussed in Section A.3. of

this Part, the focus is on harm to competition from the exclusionary effects. Thus, in Tampa

Electric Co. v. Nashville Coal Co., 365 U.S. 320 (1961), the Supreme Court framed the inquiry

in terms of:

weigh[ing] the probable effect of the [exclusive dealing] contract on the relevant area of

effective competition, taking into account the relative strength of the parties, the

proportionate volume of commerce involved in relation to the total volume of commerce

in the relevant market area and the probable immediate and future effects which preemption of that share of the market might have on effective competition therein.115

Similarly, Judge Boudin, writing for the U.S. Court of Appeals for the First Circuit, has described
116 U.S. Healthcare, 986 F.2d at 596.

117 For example, a minimum purchase contract sometimes has been viewed as less

restrictive than a full-requirements contract. See Barry Wright Corp. v. ITT Grinnell Corp., 724

F.2d 227, 237 (1st Cir. 1983) (Breyer, J.). Some courts have rejected complaints based on the

offering of incentives to deal exclusively, but others have condemned them as the economic

equivalent of prohibitions. For a detailed discussion of this case law, see Willard K. Tom, David

A. Balto, & Neil W. Averitt, Anticompetitive Aspects of Market-Share Discounts and Other

Incentives to Exclusive Dealing, 67 Antitrust L.J. 615, 630-36 (2000) (concluding that “the case

law does not forbid anticompetitive exclusive dealing contracts only when they embody a binding

‘requirement’ of exclusivity” or “only when they embody an undertaking to deal 100 percent

‘exclusively’”) and David Balto, Networks and Exclusivity: Antitrust Analysis to Promote

Network Competition, 7 Geo. Mason L. Rev. 523, 563-71 (1999).

118

 See, e.g., Omega Environmental, Inc. v. Gilbarco, Inc. 127 F.3d 1157, 1163-64 (9th

Cir. 1997), cert. denied, 525 U.S. 812 (1998); U.S. Healthcare, 986 F.2d at 598; Roland

Machinery Co. v. Dresser Industries, Inc., 749 F.2d 380, 394-95 (7th Cir. 1984) (Posner, J.).

119

 See, e.g., US Healthcare, 986 F.2d at 596; Retina Assocs. v. Southern Baptist Hosp.,

105 F.3d 1376, 1384 (11th Cir. 1997). 

120

 See, e.g., CDC Technologies, Inc. v. Idexx Laboratories, Inc., 186 F.3d 74 (2d Cir.

1999); Gilbarco, 127 F.3d at 1163.

121

 See, e.g., U.S. Healthcare, 986 F.2d at 595-96.

122

 See, e.g., Roland Machinery, 749 F.2d at 394 (requiring a showing that probable effect

of the exclusion is to raise price above the competitive level or otherwise injure competition).

123

 See, e.g., id. at 395. The Supreme Court has described several potential efficiencies. 

See Standard Oil Co. v. United States, 337 U.S. 293, 306-07 (1949).

26

the “ultimate issue in exclusivity cases” as that of “foreclosure and its consequences.”

116 Factors

identified by appellate courts for analyzing these competitive consequences include the degree of

exclusion flowing from the restraint,117 its duration and terminability,118 the percentage of the

market foreclosed and other indicia of the likely effect on competitors’ ability to operate,119 the

availability of alternative access routes to supplies or customers,120 rivals’ ability to employ

countermeasures to defeat the attempted exclusion,121 and, ultimately, the likely impact of raising

rivals’ costs on competition in a relevant market,122 including consideration of any procompetitive

justifications.123 In appropriate settings, when a B2B has monopoly power or a dangerous

probability of achieving monopoly power, exclusivity practices could also give rise to an inquiry

under the proscriptions against monopolization and attempted monopolization in Section 2 of the
124

 See, e.g., United States v. Microsoft Corp., 87 F. Supp.2d 30, 53 (D.D.C. 2000),

appeal docketed, No. 00-5212 (D.C. Cir. June 13, 2000).

125 Petition by the United States for an Order to Show Cause, United States v. FTD

Corp., 1996-1 Trade Cas. (CCH) ¶ 71,395 (E.D. Mich.1995). The conduct was challenged as

violating a modified, 1956 consent decree resolving allegations that FTD, the largest flowers-bywire association, had violated Section 1 of the Sherman Act by prohibiting members from using

other wire clearinghouses. Id.

126 United States v. FTD Corp., 1996-1 Trade Cas. (CCH) ¶ 71,395 (E.D. Mich.1995).

127 In re RxCare of Tennessee, Inc., 121 F.T.C. 762 (1996).

128

 Id. at 766-69.

129 59 Fed. Reg. 29711, 24712-14 (1994).

27

Sherman Act.124

A recent series of consent decrees entered by the antitrust enforcement agencies reflects

heightened concerns with both horizontal and vertical exclusivity practices in settings exhibiting

strong network effects. For example, the United States challenged the “FTD Only” program,

which provided a set of economic rewards to florists who used the FTD floral delivery network

exclusively. Incentives for maintaining exclusivity included awards of voting stock, increased

local advertising, and reduced fees.125 The parties consented to an enforcement order prohibiting

FTD from offering any financial incentives or rewards to members who refrain from participating

in competing wire associations.126 

The FTC issued a complaint charging that RxCare of Tennessee, Inc., the state’s leading

pharmacy network, had effectively penalized members for participating in competing, discount

networks.127 RxCare’s rules included a “Most Favored Nation” provision that required members

accepting a lower reimbursement rate outside the RxCare network to accept the same lower rate

on their RxCare contracts. Because RxCare represented a large portion of most pharmacies’

business, the complaint alleged, the rule made participation in other networks unacceptable and

inhibited the establishment or expansion of competing pharmacy networks. The resulting consent

order barred use of “Most Favored Nation” clauses in RxCare’s participation agreements.128 

The United States also challenged a rule barring participating banks in MAC, a major

ATM network, from purchasing ATM processing services from others. According to the

complaint, the rule was an unlawful tying arrangement and a means for maintaining monopoly

power in the market for regional ATM network access. Control over processing, it was alleged,

permitted MAC to withhold the connections necessary for its member banks to also participate in

other networks, making it substantially more difficult for those other networks to develop.129 The
130 United States v. Electronic Payment Servs., 1994-2 Trade Cas. (CCH) ¶ 70,796

(D.Del. 1994). In a case decided at an earlier stage in ATM network development, a court

rejected a competing network’s challenge to a MAC rule prohibiting the use of rivals’ ATM cards

at MAC automatic teller machines. Treasurer, Inc. v. Philadelphia Nat’l Bank, 1988-1 Trade Cas.

(CCH) ¶ 67,943 (D.N.J.), aff’d mem., 853 F.2d 921 (3d Cir. 1988). 

131 59 Fed. Reg. 42845, 42846-49 (1994).

132 United States v. Microsoft Corp., 1995-2 Trade Cas. (CCH) ¶ 71,096 (D.D.C. 1995).

133 1996 Staff Report, ch. 9 at 13-14, 29 (discussing interface standards).

134

 See id. at ch. 9, 12 n.34, quoting testimony of William F. Baxter.

135

 See id. at ch 9, 12-13 (explaining that market power may prove unusually enduring in

network settings).

28

consent decree prohibited MAC from tying network access and ATM processing services and

from forbidding its members from participating in other ATM networks.130 

In addition, the United States brought an enforcement action against licensing

arrangements alleged to have exclusionary effects in the market for personal computer operating

systems. According to the complaint, Microsoft’s licensing practices foreclosed rivals’ access to

the original equipment manufacturer (“OEM”) channel and lessened competition in the operating

system market.131 The consent agreement barred Microsoft Corporation, among other things,

from entering “per processor” licenses, viz., licenses that require OEMs to pay royalties on all PCs

using a particular microprocessor type, whether or not they use Microsoft’s operating system, and

from entering license agreements containing minimum commitments.132 

3. Potential Competitive Concerns

In 1995 the FTC conducted extensive hearings concerning competition policy in high-tech

markets. After reviewing the relevant testimony, case law, and analytical literature and noting the

pronounced advantage that network effects can give an incumbent operator, the ensuing 1996

FTC Staff Report cautioned that conduct that could contribute to achieving dominance warrants

heightened scrutiny in settings with prominent network effects and switching costs.133 Substantial

network efficiencies and consumer switching costs make it difficult for an entrant to start small,

compete effectively and grow to become a significant factor in the market. In high-tech network

settings, this means that me-too or incremental competition or mere shading of the price may not

suffice; competition “for a future technology” may predominate at the expense of competition “in

the present technology.”

134 However, it may take time to develop advances sufficient to

overcome the advantages of a dominant incumbent’s network, and in the interim, the incumbent

may be able to exercise market power.135
136 Salop 573. See also Carl Shapiro & Hal R. Varian, Information Rules 190 (1999)

(“Let there be no doubt: building your own base of users for a new technology in the face of an

established network can be daunting.”).

137

 See Balto, supra note 117, at 563 (“penalty contracts, discounts, rights of first refusal,

or ‘most favored nation’ provisions may create strong incentives that may effectively replicate

exclusive arrangements”). Tom, Balto & Averitt, supra note 117, at 621-30; cf. Department of

Justice and Federal Trade Commission Antitrust Guidelines for the Licensing of Intellectual

Property at § 4.1.2 (“Exclusivity may be achieved by an explicit exclusive dealing term in the

license or by other provisions such as compensation terms or other economic incentives. . . . A

license that does not explicitly require exclusive dealing may have the effect of exclusive dealing if

it is structured to increase significantly a licensee’s cost when it uses competing technologies.”). 

Similarly, the Department of Justice and Federal Trade Commission Statements of Antitrust

Enforcement Policy in Health Care explain, “The Agencies will determine whether a physician

network joint venture is exclusive or non-exclusive by its physician participants’ activities, and not

simply by the terms of the contractual relationship.” Id. at Statement 8.A.3.

138 Under the Competitor Collaboration Guidelines, exclusivity requirements are one of

the factors applied in interpreting the market power of a collaboration. Id. at §§ 3.33-3.34. As

Section 3.34(a) explains, “In general, competitive concern likely is reduced to the extent that

participants actually have continued to compete, either through separate, independent business

operations or through membership in other collaborations, or are permitted to do so.”

139

 See, e.g., Carl Shapiro, Exclusivity in Network Industries, 7 Geo. Mason L. Rev. 673

(1999) (“exclusivity provisions can interact with network effects to create substantial barriers to

entry”). “Would-be early adopters of the new network are faced with what can be a prohibitive

opportunity cost of joining the new network: cutting themselves off from the larger, established

network,” and the expectation that exclusivity rules will prevent some from joining the new

29

The need for heightened scrutiny of restrictions on outside purchasing or selling seems

fully applicable to B2Bs. As a leading economist explained at the workshop, once a marketplace

monopoly is attained, it may be very difficult to dislodge.136 Under these circumstances, antitrust

review should focus closely on the harms and benefits of the practices used to achieve exclusivity,

that is, to keep buyers or suppliers away from competing B2Bs. In particular circumstances, such

practices may cause substantial anticompetitive harm even if they rely on incentives rather than

requirements and stop short of full exclusivity.137

Exclusivity practices – and ownership interests giving rise to de facto exclusivity – affect

the extent to which participants in a B2B are able to support or patronize a rival B2B or other

alternative trading system. Tying the participants to a single B2B may undermine the ability of

alternatives to compete, effectively increasing the B2B’s market power.138 Indeed, adding

exclusivity to a setting already characterized by substantial network effects could “tip” the market

in favor of a given B2B and impede development of alternatives.139 As workshop testimony
network reduces incentives for others to join. Id. at 677-78. The article also provides a useful

summary of economic literature explaining how exclusive dealing provisions can elevate entry

barriers in markets characterized by traditional, supply-side scale economies. Id. at 678-79.

140

 See e.g., Baker 579-80 (exercise of monopoly power in market for marketplaces could

tax transactions); Bloch & Perlman (Stmt) 11.

141

 See Dupont 319-20 (exercise of power limited by ability to buy and sell

independently); Harting 416 (same).

142

 See Bloch & Perlman (Stmt) 11.

143

 See Salop 523-25 (rules of auctions can be manipulated so as to yield higher prices);

Sandhu 256-57 (suppliers may find means to retard price discovery mechanisms); Currenex (Stmt)

1 (supplier-owners may tilt the exchange in their favor).

144

 See, e.g., Krattenmaker 545 (exchanges will compete by offering better software).

145

 See Whinston 430 (marketplace monopoly may lead to less innovation); First 552-53

(competition among marketplaces in offering innovative services crucial); Brodley 542

(unnecessary standardization of marketplace platform might limit innovation by buyers or sellers

who link to the platform).

30

reflected, power in the market for marketplaces raises several competitive concerns.

An obvious possibility is higher price. B2Bs charge for their services, and a B2B with

market power could impose supracompetitive prices.140 Normally, that market power would be

limited by participants’ ability to shift to other B2Bs, private Internet-based networks, their own

EDI systems, or offline trading mechanisms.141 To the extent that exclusivity impedes such

shifting – either by preventing use of alternatives or preventing the alternatives from developing –

it buttresses the B2B’s market power. 

Another concern is less efficient service. A B2B with market power may be able to rest

on its laurels and offer less functionality.142 More subtly, it could be able to tilt its service in favor

of its owners rather than its customers. For example, a seller-owned B2B with market power

might be able to structure its services in ways to favor sellers, such as by designing auctions in a

way to maximize prices.143 Competition from other B2Bs could prevent this, but exclusivity

might impair that competition. 

Reduced innovation is another possibility. Panelists generally agreed that innovation will

be a key component of B2B competition.144 Some cautioned that removing the spur of

competitive rivalry could slow the process,145 and observed that this could follow from exclusivity
146

 See OESA (Stmt) 6-7 (exclusivity practices could thwart innovative B2Bs).

147

 See Rule 561-62 (no need to worry about B2B innovation because it will develop on a

cross-industry basis, so there will be lots of innovation competition); Henry 562 (no real fears

about innovation competition at this point). 

148

 Compare Jasinowski 556 (entry will erase concerns about undue standardization or

monopoly rents) with Simkins 409-10 (even if the market ultimately corrects problems,

energyLeader may still feel the short-term consequences, and since “we were just born in January

[2000], the short term is very important to us”).

31

provisions.146 Others, however, questioned whether this was a significant concern in the B2B

context; they argued that B2B innovation would likely develop on a cross-industry basis, so that

B2B competition within any given industry would not likely be essential for innovative activity.147

Both arguments potentially have some validity in different fact contexts -- core software, for

example might develop across industries, while the customizing and linking together of various

services might be more industry-specific – but it may be too early to speculate as to their relative

weight. 

Moreover, exclusivity could sustain any existing market power over time by making entry

more difficult. As described in Part 1.C.7, the record on B2B entry barriers is mixed. Some

argue that entry will eliminate all competitive concerns; others contend that it will occur too

slowly to maintain competition.148 It is clear, though, that to the extent network efficiencies or

other scale economies are reinforced with exclusivity provisions tending to deprive an entrant of

the buyers or suppliers it needs to succeed, entry is likely to be less effective in deterring or

counteracting anticompetitive effects. 

4. Analytical Framework and Guideposts

How then might we assess the competitive consequences of exclusivity? The inquiry

should focus on the impact of a given practice or ownership structure on the ability to form

effective competing marketplaces and the consequences this bears for competition in the market

for marketplaces.

An assessment of potential anticompetitive harm could begin with an examination of the

nature of the practices at hand and an inquiry as to how restrictive they actually are: how severely

do they limit the ability of buyers and sellers to support rival B2Bs? For example, some panelists

stressed that minimum commitment requirements typically have been relatively modest and
149

 See, e.g., Kinney 220-21; Shridharani 224; Perlman 568 (minimum purchase

requirements “so soft that they’re very unlikely . . . to have any consequence”).

150

 See, e.g., Correia 569-70 (urging that analysis look beyond market share to consider

what the B2B is doing and how it is structured).

151

 See Perlman 569 (asking if there are enough potential participants outside the

exchange so that other exchanges can form); Cooper 571 (asking if there are enough people

outside to support a market).

152

 See, e.g., Rule 559-61.

153 First 553-54 (don’t assume network effects inexhaustible or justify loss of

competition). See generally Krattenmaker 546 (finding efficiencies in ownership by industry

members “at least to some level”). 

154

 See 1996 FTC Staff Report, ch. 9 at 27 (discussing relevant merits of achieving

standards through the winnowing process of competitive rivalry as opposed to cooperative

agreements).

32

unlikely to have much effect.149 Then there may be need to focus on the specific activities in

which a B2B will engage and to assess the role likely to be played by exclusivity in the particular

factual circumstances.150 Finally, an analysis would inquire if the exclusivity practices or

ownership structure leave available sufficient buying, selling, or other support to sustain

alternative marketplaces capable of maintaining competition.151 If not, they may well cause

anticompetitive harm. 

Of course, we then need to consider any procompetitive benefits attributable to

exclusivity. Clearly, network effects are likely to be an important source of efficiency in B2B

contexts, and an analysis that failed to consider that greater B2B size may generate benefits as

well as possible competitive concerns would be incomplete.152 To the extent that exclusivity

contributes to realizing network efficiencies, therefore, it could be beneficial. That reasoning,

however, is not dispositive, and a deeper examination would pose some probing questions:

(1) How strong and pervasive are the network efficiencies in a particular industry

context? Network efficiencies may begin to diminish at some level or may not be strong

enough to justify reduced competition.153 Absent overwhelming network economies, there

may be ample room for B2B marketplace competition. Indeed, most panelists believed

that more than one B2B per industry supply chain would survive. See supra Part 1.C.7. 

Even if strong network efficiencies would eventually drive rival B2Bs to seek

consolidation, however, there may be significant benefit in maintaining competition to

select the surviving network.154 
155 Baker 579-80.

156

 See Competitor Collaboration Guidelines at § 3.36(b).

157 Rule 559-60 (interconnection will enable realization of network efficiencies); see also

Stojka 408 (noting consumer benefits from interoperability).

158 Stojka 408.

159 van Breen 205-06, 219.

160 Chen 235-37 (businesses regard transactional records as trade secrets; may need

exchange-to-exchange cooperation to sort out).

161 It sometimes may be difficult to assess the full range of potential efficiencies because

of the nascent nature of many of the services that B2Bs may grow to offer. Although an

evaluation of efficiencies should seek to take account of all likely procompetitive benefits, the

general caution against “vague or speculative” efficiency claims, Competitor Collaboration

Guidelines at § 3.36(a), bears repetition here. 

33

(2) Are the exclusivity practices reasonably necessary for achieving the network

efficiencies? Given that a B2B with strong network efficiencies would hold inherent

attractions for buyers and sellers, an analyst may question whether exclusivity

requirements are reasonably necessary. Similar questions could be asked with respect to

large-scale consortium ownership: as one panelist explained, network efficiencies derive

from broad participation, but this does not necessarily require broad ownership.

155

(3) Would interoperability between competing B2B marketplaces permit achievement of

comparable network efficiencies without sacrificing competition? Stated differently,

would open access to marketplace interfaces serve as a “practical, significantly less

restrictive” alternative?156 Some panelists indicated that, at least in theory, interoperability

might be an alternative means of achieving network efficiencies.157 At this point, however,

its practicality remains unclear. As discussed in Part 1.C.8, there is little inter-exchange

communication now;158 there are hopes that it quickly can be developed;159 but there may

be significant hurdles – such as potential property rights in transaction records160 – still to

be surmounted. Moreover, there may be potentially significant issues as to competitive

effects. The likely nature and extent of competition among interoperable marketplaces

and the likely impact of interoperability on incentives to develop and improve B2Bs would

have to be further explored. 

Exclusivity practices may also be supported by other efficiencies.161 Some panelists

observed that they may be reasonably necessary to persuade investors that the B2B will indeed
162

 See Bloch & Perlman (Stmt) 9.

163

 See, e.g., Gray 207-08; Bloch & Perlman (Stmt) 8; and supra Part 1.C.4. Another

panelist, however, responded that the showing to this point has not been convincing. Brodley

575-76.

164 Kinney 220-21.

165 Perlman 567-68; see generally Salop 534-35 (noting possibilities for free riding).

166

 See OESA (Stmt) 7 n.10.

167 Competitor Collaboration Guidelines at §§ 3.36-3.37.

34

attract – and keep – enough trading volume to be viable.162 Similarly, some suggested that

consortium ownership by major industry members was a means for ensuring sufficient usage to

spread fixed costs over a large volume of transactions.163 Others cited reduced selling costs from

negotiating a blanket price for a given volume commitment rather than re-negotiating price for

each increment of service.164 One panelist suggested that prohibiting investments in competing

marketplaces may be necessary to align the incentives of B2B owners and that minimum purchase

requirements may be needed to avoid “cherry picking” on particular contracts to the disadvantage

of the B2B.165 Another indicated that in some settings exclusivity may facilitate creation of

industry-wide communication standards.166 

The workshop was not intended to resolve these issues, and it is unsurprising that the

record does not permit a full-scale evaluation of the significance or legitimacy of the various

efficiency claims for exclusivity. That must await fuller investigation in actual factual settings

where inquiry can be made as to whether particular efficiency claims are verifiable and potentially

procompetitive; whether costs are incurred that reduce the claimed benefits; whether similar

efficiencies could be attained through practical, significantly less restrictive means; and whether

the cognizable efficiencies would be likely to offset the potential for anticompetitive harm.167

The fact-specific nature of these inquiries makes specific conclusions as to the competitive

consequences of the various exclusivity practices impossible. In some settings they may raise

competitive concerns, and in others they may be procompetitive. Nonetheless, some guideposts

can be planted. All else held equal (including the ability to achieve efficiencies and innovations),

competitive concerns are magnified (i) the greater the market share of the B2B owners; (ii) the

greater the restraints on participation outside the B2B; and (iii) the less the interoperability with

other B2Bs. This does not mean that industry consortia B2Bs are presumptively unlawful or that

minimum volume commitments cannot be imposed. It does suggest that high levels of industry

ownership or substantial minimum purchase requirements will likely draw a closer look. On the

other hand, all else held equal (including the level of likely anticompetitive harm), competitive

concerns are reduced the greater the contribution of exclusivity to achieving procompetitive
35

benefits. As with most areas of antitrust analysis, there is no magic formula for evaluating

competition in the market for marketplaces, only a framework of analysis designed to weave

complex and sometimes-conflicting tendencies into an assessment of likely competitive effects.
APPENDIX A:

WORKSHOP PANELISTS

NAME AFFILIATION DATE

John Allgaier Director, Services & Supplies Purchasing, 6/29/00

General Mills 

Jon Arnold CIO, Edison Electric Institute 6/29/00

Stephen Attanasio President & CEO, WIZNET, Inc. 6/29/00

 

William J. Baer Arnold & Porter 6/30/00

Jonathan B. Baker American University, Washington School of Law 6/30/00

Nailesh A. Bhatt Founder & Director, BulkDrugs.com 6/29/00

Dale Boeth Vice President of Strategic Development, 6/29/00

PurchasePro.com, Inc. 

 

Gerard van Breen Executive Vice President, Royal Ahold 6/29/00

 

Joseph Brodley Boston University School of Law 6/30/00

David Y. Chen Co-founder & CEO, GeoTrust 6/29/00

Tim Clark Senior Analyst, Jupiter Communications 6/30/00

Christopher G. Cogan Founder, Chairman & CEO, GoCo-op 6/29/00

 

Timothy Cooney Co-founder & President, Ventures4Sale.com, Inc. 6/29/00

Mark Cooper Research Director, Consumer Federation of 6/30/00

America 

 

Edward Correia Latham & Watkins 6/30/00

Andra P. (Andy) Dupont Director, Electronic Market Channels, Dow 6/29/00

Chemical Company 

Harry First Antitrust Bureau Chief, New York State Attorneys 6/30/00

General Office 
 

APPENDIX A

NAME AFFILIATION DATE

Albert A. Foer President, American Antitrust Institute 6/30/00

Gary Fromer Vice President, New Business and Partner 6/29/00

Solutions, SAP America, Inc. 

 

Jere Glover Office of Advocacy, Small Business 6/30/00

Administration

Rod Gray CFO, Petrocosm Corporation 6/29/00 &

6/30/00

Margaret Guerin-Calvert Principal, Economists Incorporated 6/30/00

Gina Haines Co-founder & Senior Vice President Operations, 6/30/00

FacilityPro.com 

Morgan C. Harting Manager, E-Commerce Group, KPMG Consulting 6/30/00

Roxann E. Henry Howrey, Simon , Arnold & White 6/30/00

Nicholas P. Heymann Senior Vice President, Equity Research, Prudential 6/30/00

Securities, Inc. 

Captain Kurt Huff Supply Corps, United States Navy 6/29/00

Jerry J. Jasinowski President & CEO, National Association of 6/30/00

Manufacturers 

Steven J. Kafka Analyst, eBusiness Trade, Forrester Research, Inc. 6/29/00

Angie Kim President & Chief Customer Officer, 6/29/00

equalFooting.com, Inc. 

Sam E. Kinney Co-founder & Executive Vice President, 6/29/00

FreeMarkets, Inc. 

 

Leah Knight Research Director, B2B Internet Marketplaces 6/29/00

Worldwide, Gartner Group 

Jay Knoll Senior Staff Counsel, Detroit Diesel Corporation 6/29/00
APPENDIX A

NAME AFFILIATION DATE

Thomas Krattenmaker Mintz Levin Cohn Ferris Glovsky & Popeo 6/30/00

Charles Libicki Co-Principal, Interface Logic Systems, Inc. 6/29/00

Hal Loevy Vice President Global Marketing & 6/29/00

Partnerships, SGSonsite.com 

David Lucking-Reiley Assistant Professor of Economics, Vanderbilt 6/30/00

University 

Catherine L. Mann Senior Fellow, Institute for International 6/30/00

Economics 

Alex Mashinsky Founder & Vice Chairman, Arbinet 6/29/00

Lori Mirek President & CEO, Currenex, Inc. 6/29/00

Joel M. Mitnick Brown & Wood LLP 6/30/00

 

Timothy K. Muris George Mason University 6/30/00

Robert Parker Vice-President, B2E Commerce Strategies, AMR 6/30/00

Research, Inc. 

Scott P. Perlman Mayer, Brown & Platt 6/30/00

Charles Phillips Managing Directory, Enterprise and Internet 6/29/00

Software, Morgan Stanley Dean Witter 

 

Phillip A. Proger Jones, Day, Reavis & Pogue 6/30/00

Roy S. Roberts Co-founder, Chairman & CEO, M-Xchange.com 6/30/00

Charles F. (Rick) Rule Covington & Burling 6/30/00

Steven Salop Georgetown University Law Center 6/30/00

Harpal S. Sandhu President & CEO, Integral Development Corp. 6/29/00

Kaushik Shridharani Managing Director, Business E-commerce, Bear 6/29/00

Stearns & Co, Inc. 
APPENDIX A

NAME AFFILIATION DATE

Joel E. Simkins Vice President, energyLeader.com 6/30/00

Dwayne Spradlin Vice President of Corporate Development, 6/29/00

VerticalNet, Inc. 

Patrick Stewart President & CEO, MetalSite, L.P. 6/29/00

 

Tim Stojka Chairman & CEO Commerx, Inc., Developer of 6/30/00

PlasticsNet 

Michael Sullivan Chief Operating Officer, HotOfftheWire.com 6/29/00

Shyam Sunder James L. Frank Professor of Accounting, 6/30/00

Economics and Finance, School of Management, 

Yale University 

Robert Tarkoff General Counsel and Senior Vice President of 6/29/00

Corporate Development, CommerceOne 

 

Gretchen A. Teagarden Director, B2B E-Commerce, Salomon Smith 6/29/00

Barney, Inc. 

Robert Verloop Vice-President of Sales & Marketing, 6/30/00

BuyProduce.com 

 

Mark L. Walsh President & CEO, VerticalNet, Inc. 6/30/00

 

Rick Warren-Boulton MICRA 6/30/00

Andrew B. Whinston Director of the Center for Research in Electronic 6/30/00

Commerce, Red McCombs School of Business, 

The University of Texas at Austin 

Laura A. Wilkinson Clifford Chance Rogers & Wells LLP 6/30/00

Alvin Zaad CommerceOne 6/29/00
APPENDIX B:

WRITTEN STATEMENTS

NAME AFFILIATION

Dana Blankenhorn Dana Blankenhorn

Robert E. Bloch Mayer, Brown & Platt

Scott L. Perlman

Dale Boeth Vice President of Strategic Development, 

PurchasePro.com, Inc. 

Matthew Bye Matthew Bye

David A. Clanton, Baker & McKenzie

Sergio A. Leiseca

David J. Lang

Heiko E. Burow

Peter de la Cruz Keller & Heckman, LLP

Sheila Millar

Currenex, Inc. Currenex, Inc.

Ernst & Young Ernst & Young

Albert A. Foer American Antitrust Institute

Agnes Foy CapCLEAR Ltd.

Morgan C. Harting Manager, KPMG Consulting

Lawrence Hecht President, Internet Public Policy Network

James F. Henry CPR Institute for Dispute Resolution

Jerry Jasinowski President, National Association of 

Manufacturers
APPENDIX B

NAME AFFILIATION

Sam Kinney Co-founder & Executive Vice President,

FreeMarkets, Inc.

Neil De Koker Managing Director, Original Equipment 

Suppliers Association

Marc L. Fleischaker Arent Fox Kintner Plotkin & Kahn

D. Reed Freeman, Jr.

David H. Evans

Steve Leahy NRGline

Lara J. Leibman Manager, Government Affairs - the Americas,

Richard S. Shapiro Managing Director, Government Affairs - the

Americas,

Enron Corporation

Charles Libicki Interface Logic Systems, Inc.

Hal Loevy Vice President Global Marketing & 

Partnerships, SGSonsite.com 

Charles Phillips Morgan Stanley Dean Witter

Mary Meeker

Arthur Sculley Partner, Sculley Brothers, LLC

William Woods CEO, Bermuda Stock Exchange

Joel Simkins Vice President, energyLeader.com

Bruce D. Sokler Mintz Levin Cohn Ferris Glovsky & Popeo

Thomas G. Krattenmaker (Comments of the Worldwide Retail

Fernando R. Laguarda Exchange)

Amy L. Bushyeager

Ruth T. Yodaiken

Ghita Harris-Newton

Fred Sollish Executive Director, Open Buying on the

Internet
APPENDIX B

NAME AFFILIATION

Gretchen A. Teagarden Director, B2B E-Commerce, Salomon Smith 

Barney, Inc. 

M. David Wilder General Counsel, Spectrum Meditech, Inc.