E-business and market making

Business enabled electronically is an opportunity to improve markets for buying and selling by supporting communication with more potential customers and suppliers, and enhances speed and certainty of determination of prices and volumes

Related back to the basic economic Supply and Demand principle, business enabled electronically can also improve transparency of information flow, promote competition and establish better prices.

Profitability can be improved through lower prices, improved supply sources, and reduced procurement and/or selling costs. This can lead to greater investment in supporting technologies, more and better jobs and a sustainable economy. There are 2 main components to market making...


There are various conventional auctions that can be conducted electronically, e.g. conventional, reverse and Dutch. Prerequisites are:

(a) a clearly defined and understood specification for what is required - product or service. Agreed and guaranteed quality standards are essential;

(b) a number of suppliers who are ‘equally’ capable of providing product or service on time, within specification and with any necessary support;

(c) a significant number of occasions on which an auction will take place. E-auctions are more applicable to purchasing office supplies & bulk chemicals than aircraft carriers & new aircraft engines.

Electronic financial market making in foreign exchange, bonds and equities has been long-established. It’s important to undertake trials to understand what works before committing to investment.

e-tendering and e-contracting

Whilst similar to e-auctions, e-tendering and e-contracting will benefit situations where product and service specifications are more complex, and where greater buyer input is required to compare and contrast supplier goods and services. Substantial benefits arise from the simplification and standardisation of both the tendering process & consolidation into formal contracts. Ensure that both bids and specifications are secure in order to build trust and confidence in the new processes.

One of the main factors hindering the improvement of buying and selling is the diversity and complexity of processes for negotiation and contract-making. Electronic business can enable more common and easy-to-use processes, thus reducing the costs for all parties and to encourage potential suppliers to participate.

Legal requirements

The establishment of a B2B (business to business) e-market is subject to The Electronic Commerce (EC Directive) Regulations 2002. B2B e-markets are considered as information society services, which can be freely established without prior authorisation.

Many concerns related to B2B e-markets, in particular to B2B electronic auctions, are attributed to a lack of transparency on the way the electronic transactions are conducted and to specific business practices which are perceived as unfair by enterprises. Examples of such postulated unfair practices refer to

  • the lack of a clear reference to the participation terms and conditions,
  • uncertainties regarding the exact moment a contract is concluded,
  • the possibility to withdraw bids, the uncertainties as to the acceptance of the best bid in online auctions, and
  • to practices which are considered as a distortion of the price setting mechanism in online auctions (e.g. the submission of bids by the initiator of an auction). Such practices are generally covered by national contract law and legislation against unfair competition, which apply to both offline and online auctions.
However, these rules may differ from one country to another, thus resulting in perceived uncertainties as to the applicable rules for cross-border electronic transactions.

In some cases, the existing national rules clearly state that specific practices constitute a breach of contract, e.g. the sale of defective goods, late or non-delivery of ordered products, late or non-payment of goods, wrong quantity or bad quality of delivered goods. In other cases, the legal situation is less clear, e.g. as regards the hidden setting of reserve prices in auctions, the right of the initiator of the auction to submit bids or the obligation of the initiator to accept the best bid. In particular, some national legal provisions may leave different options to the parties to agree on what extent such practices are allowed or not. It may also remain unclear how existing national rules for auctions apply to the online environment (e.g. definition of the exact moment a contract is concluded in an online auction).

Distance Selling Regulations

Buyers participating in online auctions do not have a right of cancellation under The Consumer Protection (Distance Selling) Regulation 2000 (as amended)

Further information