When Big Three automakers GM, Ford and DaimlerChrysler announced the formation of a single business-to-business (B2B) marketplace for buying and selling supply chain-related auto products, the firms inadvertently demonstrated the promise and peril of e-commerce on the Internet.
On the plus side, the three firms are going to create what Howard Kutner, group vice president in charge of GM’s worldwide purchasing, called “the world’s biggest, fastest, largest exchange for transacting business that the Internet or probably other businesses have ever seen.”
Since the Big Three alone buy something like $250 billion (US$) annually in goods and services, Kutner is doing more than whistling “Dixie.”
Would the Feds Let Them Merge?
On the negative side, the Big Three are opening a Pandora’s Box of antitrust-related questions related to whether giant buyers should be allowed to own and operate trading e-markets in which they are the major participants.
Now, I’m not saying that Ford, GM or DaimlerChrysler should be prevented from operating e-markets for their own purchasing. However, there are serious questions about whether the Big Three — or any other group of major purchasers in an industry — should be allowed to derive revenues and earnings from such trading.
Imagine, if you will, the U.S. government allowing Ford, GM and DaimlerChrysler to merge into one car company. Even though the Japanese and German firms offer U.S. manufacturers significant competition, how would these rivals fare if all three U.S. leaders combined together?
It is virtually unthinkable that the U.S. government would allow such a merger to happen. Therefore, why should the companies be treated differently just because they are engaging in an Internet venture — especially since Ford and GM have already eliminated a potential competitor by combining?
A Few Concerns
Here’s my number one concern: Imagine that some company tries to set up a competitive venture. While that company would not get online purchasing from Ford, GM and DaimlerChrysler, it might try purchasing from the many firms that supply the Big Three — but then bid out sub-assemblies.
Since the Big Three have their own purchasing network, however, might they decide not to do business with companies that did not use that marketplace for their sub-assembly purchasing?
Such behavior would be a blatant violation of antitrust laws, yet it would be extremely difficult to determine whether such laws were being broken. More importantly, many suppliers would be unlikely to test whether the Big Three would engage in such behavior and would automatically do their purchasing on the Big Three’s e-marketplace.
The same, incidentally, would likely be true in any industry where a huge concentration of buying power sets up an online B2B marketplace.
Should the Government Stop The Marketplace?
It is very difficult to recommend that the U.S. Department of Justice (DOJ) or Federal Trade Commission (FTC) step in to stop the Big Three from setting up their B2B marketplace.
Nevertheless, the prospect of the Big Three establishing a monopoly in the new industry of online B2B automotive supply chain purchasing before it gets off the ground warrants serious concern. Do not be surprised if the DOJ or FTC takes a close look at such a marketplace.
Also, do not be surprised if these agencies make an effort to prevent the marketplace from happening — or require that the Big Three largely sell off their interests once it gets operating.
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The same fears are repeated over and over again. The described case managed to grow since then and now consists of two or three other major car producers.
It is good that, although not quite in the exact way, those matters are considered, but in my opinion we should look in different direction.
Electronic marketplaces, and e-hub (especially dependent ones! ) in particular, are powerful anti-competitive tools for reasons other than increased market power of buyers. It is the vast scope for collusion, illegal market information sharing, price commitment, etc. that should be our major concern (or aim 🙂 ). I would love to see some serious articles on that issue.
simon