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market-based opportunistic and costly transactions. Ecom is by definition inter-firm or
inter-agent and cyber mediation of transactions cannot reduce the cost owing to
opportunism. In fact in all likelihood such costs would increase because trust is
recognizably the most intractable problem in this commerce. Increase in efficiency
following reduction in transaction cost, according to TCE framework, happens through
vertical integration. For example, electronic commerce has opened up a direction that
disintegrates the verticality of a large corporation. Bringing closer the buyers and sellers
has been putatively the transaction-cost-reducing factor; whereas we observe that costs
even while reduced on this count is an accounting cost. Accounting cost reduction is
fictional and this reduction cannot ensure achievement of profit or even of long-term
There, however, is another aspect of TCE and externality. We know following the
formulation (in the Pigovian tradition) on externalities by Coase (1960) that the extent a
property owner can affect others without paying for these effects there arises a social
cost, which is greater than their private costs. Coase argued that owing to imperfections
in property rights this externality that is the divergence between private costs and social
costs appear and the institution of price fails to clear such externalities. This phenom-
enon gives rise to transactions costs. Our empirical observations suggest that Ecom
pulls through economic agents across several segments of industries along the scope
direction or else Ecom pulls through agents who are in the complimentary sectors. Ecom
is therefore a potential source of externality. However, social costs arise because
according to Coase transactions fail to operate through price interfaces. Coase argued
that there were not enough decompositions or partitions between specializations. In
other words, if only enough specializations or separations between economic agents fail
to appear consequent to introduction of Ecom, the social costs will rise. A solution to
the rise in such costs could be dis-intermediation resulting into the formation of M-form
firms. Contrarily separations in economic agencies or in specializations will engender
transactions through price interfaces. Ecom achieves this feat. In Ecom price interface
is regained. Transactions previously entrapped in non-price modes are released through
increased division of specializations, in other words through increased intermediations.
Ecom therefore engenders mediations in the market.
A long period of production refers to the entire input-output table of an economy. A short
period of production refers to a specific transaction chain of a business or a sector.
Electronic commerce increases the length of both these periods. Vertical integration
linked up several such industrial sectors. Ecom and associated expansion along the
direction of scope have crossed boundaries of specific transaction chains or of industry
sectors. Increases in these periods take place because of several other factors as well.
With an increase in the division of labor there would be increases in asymmetric
information, insurance and valuation risks, joint productions of services and other
goods, increased asset specificities, information impactedness and reduction in internal
production. Innovations increase in Ecom because each economic agent has incentives
to speculate and each agent looks for rewards from surprises that it might bring about
in offerings, timings, and linkages. Electronic commerce reminds us about the traders of

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28 Banerjee

the earlier times when apiece goods were traded based on highly asymmetric information.
Cantillon referred to this and Shackle defined the Neo-Austrian version of profit based
on that understanding of Cantillon. Austrian theory argues that capital is time. This time
is the period of production in an economy. An increase in the period of production is a
reflection on the increase in rate of profit and of capital in an economy. So we could
summarize that Ecom increases speculative profit by furthering the period of production
that results from novel and increased cyber-mediations.
Shackle argued about surprise. He discussed profit and its rate from the perspective of
lengthened periods of production and the increase in division of labor amongst economic
agents who are speculators. Electronic commerce has opened up this opportunity. In
these commerce intermediations in particular, cyber mediations have increased and will
continue to increase. Transactions cost must increase because a principal cannot check
opportunism and lack of trust between agents any longer. We have argued how the TCE
framework fails in explaining the emergent phenomenon of electronic commerce. Neo-
Austrian framework offers a cogent explanation as to how electronic commerce increases
rate of profit and the capital in an economy based on electronic commerce. Moreover, to
counter the looming increase in costs of transactions, Ecom offers furthered mediations
(that is specializations) in price-based transactions. An increase in such price-based
transactions alone can contain social costs and Ecom through increased mediations
offers this as a distinct possibility.

Intermediation and Coordination
Received theory presents intermediation as the structure of a market. Microstructure of
a market (O™Hara, 1997; Goodhart, 1989) refers to dynamics of transactions, relations,
expectations and the time. Intermediaries served the most essential function of the
microstructures of a market. Economic agents who interpolate them in between the
producer of a good or services and its consumer are intermediaries according to the
structural theorist. As a result of this structural emphasis the presence and the relevance
of an intermediary can be analyzed in terms of costs of transactions. A dispersed
microstructure of intermediation can remain operative only so long as transactions costs
(Coase, 1990) do not favor formation of vertically integrated (Williamson, 1985) or
multidivisional firms (Chandler, 1990). This appears to be a static view of the market. This
approach is static because it can indicate substitution of one structure by an alternate
structure alone and it fails to indicate other functions of structures.
We would argue that the microstructure of intermediation serves a major function. This
function is coordination, which elongates the period between production and consump-
tion. Elongation of this period is absolutely necessary to the formation of capital because
capital is nothing but deferment of consumption. Static coordination achieves this
elongation in a limited sense while coordination of dynamic situations enhances this
period substantially. The static structural account on the microstructure of intermedia-
tion fails to capture this key aspect of coordination, which is a central theme in economic
thinking because in its absence competition and innovation fail. Coordination between

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Re-Intermediation and Deferment through E-Commerce 29

agents in a market is the key to the puzzle that the market survives through transforma-
tion, and that agents undergo changes in order to live through. Ecom refers to structural
changes in market mediations and hence in the microstructure. Such changes lest
reduced to anarchy or disruption must adhere to coordination, or more properly to
coordination of expectations. Equilibrium or more particularly a dynamic equilibrium
cannot be attained or maintained without the intervention of coordination. Coordination
without mediation is impossible. We will take up two modes of coordination. Intermedi-
aries are there in order to coordinate between two groups: first between several
producers”current, potential and complementing, and second between producers and
customers”current and potential. The former refers to aspects of competition relating
to interoperability and inter-dependent innovations. The latter refers to aspects of
creating and managing demand in the context of uncertainties. We discuss these two
aspects in the present section very briefly on coordination with customers and in the
following section on coordination amongst producers.
Ecom mediates between price quantity and most importantly the product (innovation)
decisions of the producer, and the utility expectations of the customers. Under the
circumstances of no-innovation, or of one single homogeneous product enjoying
monopoly a la Chamberlin (1933), there is no need for coordination between the producer
and the customer. However, following Richardson™s (1996) argument, a market experi-
ences a sequential competition between succeeding monopolists (contrary to
Chamberlin™s picture of co-existing monopolists) when there are continuous innovations
in product. This sequential competition is between a current product and a future product
(and not as suggested by Chamberlin between two near-identical current products). In
Chamberlin™s analysis a product can be substituted but completely only following the
completion of the life cycle of the product. In sequential competition, as suggested by
Richardson, all of the products get substituted having fulfilled only partially their life
cycles, and as a result firms follow a strategy of offering versions of products. Our
understanding of market making refers to such versions or sequences of products. A
particular product brought out through innovation can be produced necessarily in
shorter quantities. Prices that can be fetched support only normal and not a monopolist™s
A product version or a sequence necessarily must make a market through arousing
customer expectations on future utility. A sequence of utilities implies therefore that
changes in customer™s perceptions or expectations of utilities take place in harmony with
producers™ perceptions or expectations. In other words, producer and customer must
have mediated relations, which make it possible for the two parties to adhere to a common
frontier of utility ensemble. In static non-sequential competition the role of mediation
remains very restricted. In sequential competition innovations in products would fail in
the absence of mediations. In other words, mediation being based upon sequential
competition must increase in such innovation-led increasing-return-experiencing mar-
kets. Ecom based mediation serves precisely this function of increasing mediation.
Moreover previous markets with near-zero innovations in products could afford to make
calculations on prices and quantities, such as the average cost, marginal cost and
marginal return. In sequential competition no product can complete its life cycle and
hence calculations of quantities and prices remain no longer exogenous. Price-quantity

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30 Banerjee

variables now come under the scanner of negotiated endogenous settlements. Uncer-
tainties about the potential product and information asymmetries between the current
product market and that of the market of the product next in sequence necessarily
implicates microstructures in the market who can bear the risk, who can provide
insurance, or hold the stock-in-progress, and who above all can calculate on durability
of the current product. This switch to sequential competition therefore relegates
monopolistic price-quantity variables to non-importance and substitutes those by new
endogenous and negotiated variables, which are sequentially differentiated prices.
Microstructure of mediation becomes the absolute necessity. Ecom therefore in lieu of
dis-intermediation demands vigorous intermediation through novel market microstruc-
Finally, a future product and its arrival as well as its power to fulfill the expectations of
the customer must defer the consumption of that potential product. Consumption of the
current product is given up in expectation of the arrival of the future product. Deferment
thus takes place twice at the levels of both consumption and production. Ecom and its
intermediary-based coordination therefore shift the consumption through elongating
the chains of price-based intermediation. This often happens through several kinds of
limit orders or limit pricing, or through other modes of negotiated and insured shifts.
Dispersion of prices can happen only when intermediation advances to raise buffers for
absorbing the shocks. Price dispersion in Ecom can be afforded because enough
mediated buffers have been put in place. This brief account above on customer-producer
coordination shows us how intermediation and deferment increases in Ecom. To recall,
this deferment is of the first kind arising from customer-producer coordination of
expectations. We now look at the deferment of the second kind.

Deferment and Normative Coordination
In this section we elaborate upon coordination that appears necessarily between
producers. The context of production is a sequential competition that is production of
future products through innovations and based upon increasing returns and along
dynamic equilibrium. Successions of short-lived products from several producers must
entangle them in a web of expectations on successions. Another aspect of a product is
that a product in the future must remain interoperable with a set of other products
emergent from complementors lying in the scope direction. Richardson (1997, 1998) did
not elaborate upon inter-operability. There are two possible courses, in the first inter-
operability can be considered as non-sequential that is when inter-operable elements are
pre-reconciled and they reflect a situation of timeless equilibrium. In the second aspect,
it may refer to an input-output system”an interdependent succession of events through
which intermediate products get apportioned to the final consumable products. Input-
output systems allow for technological changes because consequent to technological
changes or changes in tastes, etc., the successions or the relative apportionments might
change. This second mode, even if not immediately and directly as in a Leontieff system,
conceals the element of time and therefore does not depend on pre-reconciliation and on

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Re-Intermediation and Deferment through E-Commerce 31

equilibrium conditions. Richardson seems to have preferred the first mode. We argue
instead that the second mode alone can explain time-based, technological and unfore-
seen changes that remain operative over any inter-operable system.
This second mode is close to the Austrian understanding of time-dependence of capital
and yet it is different in significant manners from it, based as this proposal is on Shackle™s
(1972) argument. In fact, we begin from Shackle™s argument and develop this idea a bit
more. Normative coordination is this additional element that Shackle did not explain.
Normative coordination we wish to argue is an outcome of the “capital as time” thesis
of Shackle. We do so more because strategy apprehends and orients this dimension of
time. Criticality of time in orienting one™s product-lines or technology constitutes a
strategic move, and such a move must be able to influence and orient the moves of other
firms. This capability to be able to orient the orientations of other firms, dependent on
the expectation of expectations, can be achieved by strategic knowledge. Two corollaries
follow. First, we have now a new definition of capability that is the capability to leverage
strategic knowledge about others. Second, a strategic knowledge is about the processes
in other firms and is about the possibilities of their orientations towards their own
strategic advantages. This dimension of orientation is captured by the second mode of
inter-operability. Time enters here because orientations appear in possible cascades. A
particular ex-post orientation tells us about the choices committed and acts executed.
Success in orienting processes of other firms by leveraging strategic knowledge toward
one™s own advantage becomes strategic only when this resultant orientation accrues a
Cantillon profit or only when this ex-post inter-operation appears as “capital as time.”
An orientation through normative coordination of several intermediate products is an act
of deferment of the consumption. A deferment of consumption achieved through
elongation of the period of production or through elongation of the divisions of labor
constitutes capital. It follows then that strategic acts are undertaken to increase capital.
Such strategic acts become possible through normative coordination.
Shackle (1972) argued, “¦ capital is time ¦ capital is the manifestation of the role of time
lapse in the productive process ¦ capital is delay. But delay is an inconvenience, a
disutility, a discomfort, something which will not be borne except for a reward. ¦ capital
seems to ¦ offer a prize for the endurance of delay ¦ (as) a marginal balance.” A pure
Austrian approach assumes that deferments are pre-reconciled amongst parties. Pre-
reconciliation takes place through coordination or inter-operability of the first mode, as
described above. However, there are opportunism and cheating, there are technological
changes never foreseen, and there are changes in utilities. Such changes moreover
happen along temporal successions. Richardson (1960) does not recognize such changes.
In contrast, Richardson™s schema fits in with the Austrian schema of plan-coordination.
Departures that Richardson, and following him Leijonhufvud (1993) and Krafft and Ravix
(2000), made consisted in recognizing that pre-reconciled plans would still take time”
a duration that information needs to flow across firms and a time called “gestation lags”
that would remain invariable across investment commitments of firms. The problem of
aligning pre-reconciliation with plans (which in equilibrium surely would be equivalent
to strategy) is then a problem of quickening of computation (this alignment is
computationally feasible). Krafft and Ravix (2000) find out the computational algorithm
with two forms, namely “maintain competitive investments under a maximum threshold
level” and “maintain complementary investments over a minimum threshold level”” and

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32 Banerjee

they argue that “viability of the industrial system is ensured only if the two conditions
are proved simultaneously.” This leads them to argue that firms must act for coordination
of both competitive and complementary investments.
Time lag in this model does not take into consideration delays or deferments owing to
possibilities. A possibility to link up with or be complemented by a set of alternatives at
any point of time is afforded by a technological innovation. This is the first objection.
The second objection is that deferment is capital and it happens not because of a “market
failure.” In the Richardson-type of argument delay is undesirable. Krafft and Ravix argue
for institutions that could alleviate problems of delay. These institutions can take up
several forms, such as sequential contract from the property rights approaches of Hart
(1988), Grossman and Hart (1990), et al., where there is information delay say due to
uncertainty but there is no investment delay; or, if there is irreversible investment while
there is no information delay a firm needs to make right decisions regarding profitability
of a competitive investment (Dixit & Nalebuff, 1991). Other forms of coordination that
might be taken up include informal market relation, licensing, strategic alliances, and
formal agreements of various sorts, vertical integration or simply integration. The nature
of the institution, it is argued (Langlois and Robertson, 1995; Teece, 1980, 1986, 1988)
would depend on the type and length of delay. Teece (1986) argues that if the delay is
caused by an autonomous innovation (which is relatively independent of other stages
of production) then several types of institutions might emerge depending on the internal
capabilities of the relevant firms. In case the innovation is systemic (in which simulta-
neous changes in several stages of production is required) Langlois and Robertson
(1995) argue that there is the likelihood of vertical integration. Similarly when there are
delays in both types and the delays are long, vertical integration resolves the simulta-
neously present coordination problems, because the incumbent will have to generate
information on strategies that other firms can implement as well as the incumbent will have
to muster coordination of the entire chain of systemic innovation. In case the innovation
is autonomous and the delays necessarily shorter a large number of cooperation tools
would suffice. And when there is only one type of delay in market-based transactions
or when both the delays are of near zero duration simple market-based relations would
be able to resolve the coordination problem. Institutional arrangements of the type of
vertical integration according to this argument appear necessary only under specific
According to this thinking, longer delay caused by systemic innovation can be managed
as per a pre-reconciled plan. There is little uncertainty involved. Autonomous innova-
tions according to this argument would experience shorter delay. Both these appear to
us as unsustainable. Systemic innovations we understand as ex-post. Systemic innova-
tions appear through an uncertain mechanism called by Shackle as “orientation.” The
delays and their lengths are attributable to this orientation. Delay as deferment refers to
the postponement of the consumption with the expectation that there would be a profit
at the margin. The longer the delay or the “average period of production,” the higher is
the capital. “It is this orientation of the presently co-existing objects which solely
contains what we are measuring when we examine the ˜period of production™. Orientation
is thought, design, intention, and expectation. Thought is mutable and elusive, thoughts
in different minds about ˜the same™ objects need have little in common” (Shackle, 1972).
An ex-post systemic technology offers solution to the plans “now” made but there is little

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Re-Intermediation and Deferment through E-Commerce 33

to ensure that such plans would indeed be executed. The binding to a plan is ordinarily
verified through committed or irreversible investments. The average period of produc-
tion is computed from such plans “accepted for the time being as a basis of immediate
action, but by no means guaranteed” (Shackle, 1972). Technology dictates the current
configurations that would give the plans stability in some “short period.” Invariably
advances in technology would tend to shorten this period “but the pace of innovation
would itself be limited by economic considerations, by commercial organization and
habits and by contracts” (Shackle, 1972). We might understand an average period as per
the plans made by all participants to be the production net in an epoch, and the short
period as per the plans made by participants to a systemic technology (as in a chain of
Ecom usage) while a period even shorter as per plans made by those few who participate
in an autonomous technological innovation, involving as it were a few firms through
Ecom. However, we must emphasize that lengths of periods are determined more by
economic states of affairs than by technological innovations. Increase in the average
period, for example, Shackle argues, is never realized to the full because the production
net is too lengthy and circuitous and negotiation with the net too protracted owing to
the presence of durable equipment or the inertia caused by irreversible investment.
Epochal increase in the average delay reflects the general rise in capital and in divisions
of labor. Systemic increase in delay reflects an increase in divisions of labor. The velocity
with which an intermediate product might move through Ecom intermediaries reflects
technological pace and the productivity but that hastened velocity cannot compensate
for the lengthened divisions of labor. Prior to its appearance, technology is uncertain.
However, following its appearance, it determines the circuit of production and hence the
plans for production. Human ingenuity reflected in the strategic moves, however,
bypasses such determinations by inventing and innovating further on economic orga-
nization of production. This is a step that a firm takes with the hope of reaping a profit,
which is beyond technological rent (the Schumpeterian profit) and which belongs to the
Cantillon profit. The firm resorts to strategic surprise and evocation of expectation.
Modes through which expectations can be raised include of course lengthening of the
production net, bringing about novelties and surprises in combining resources or in
design of contracts and finally in innovating upon new technologies and in engendering
divisions of labor. To underscore, Ecom affords best such requirements of mediation.
Coordination under such circumstances must look forward to the future. The coordina-
tion discussed above referred to the plans made previously. Concurrent coordination
refers to the adjustment process. However, plans for deferment of consumption and on
surprisingly new forms of intermediate products and combinations thereof are unique to
a firm. This plan refers to the present and the future. Incumbent firms expect that novel
routes of production net will emerge from its strategic choices. Firms belonging to the
strategic milieu expect that expectations of the incumbent follow a path that is advanta-
geous to them. Coordination of expectations can be achieved through intermediations,
acting as a surrogate for dialogues amongst the parties. A dialogue often continues for
rather long, however, often taking off to a rounding up through the evolution of norms.
A norm is not a rule. It is not a routine either. A norm is always robust when it speaks
only of what parties are not expected to do and when it allows freedom to parties to write
whatever their expectation guides them to. A norm sets down injunctions then. Injunc-

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34 Banerjee

tions allow a very large space to the parties in a dialogue to expect the expectations of
Strategic expectations of economic agents, several producers complementors and
intermediaries experience deterrence caused by durability of investment. Durability
reduces uncertainty, shows commitment and exacts reciprocal durability of investment
from other parties. Ex-post plan and existing technological paths are durable too. Novelty
in technology or innovation and reduced durability of investment allow economic agents
to engender differentiation of labor and increase in lengths and numbers of nested
circuits of a production net. An agent defers the consumption with the expectation of
profit. Profit would be allowed to this agent only if there are other agents who participate
in the deferment and each of whom holds expectations on profits. The deferment must
complete itself at a future time on approaching the average period of production. Similar
to the normative dialogue these expectations need to follow norms in order to bring about
completion of a particular production net. Norm guides the expectations of agents by
disallowing them certain paths and the agents with the freedom to expect expectations
of others keep generating short-period nests and an average period dialogue by
remaining within the norm. Short periods remain nested within the overall structure of
the average period.
To put in another way, it follows from our analogy that divisions of labor do not possess
uniqueness or some unique rationale. Divisions of labor across firms or across several
groups, such as the intermediaries, would then, we argue, be contingent to a situation
of expectations. Such divisions retain fluidity. Designing an end consumable product
through severalties of coordination might take several paths with several alternative and
possible divisions amongst the participants who all join in the deferment-based expec-
tations of expectation. The only binding that these groups or firms would consider
necessary is what we have called normative binding. A great deal of ambiguity can be
allowed in such engagements. Participants who could only guess based on partial and
always evanescent evidences offered by the partners, use as it were a mix of axiomatic
and subjective probabilities, or better still would be to think about potential. This
potential gelled in time is the capital.
The argument of Krafft and Ravix or Leijonhufvud regarding the failure of the market to
offer solutions to a coordination problem when there are two types of delays, namely that
on information delay and investment gestation lags, has led to organizational and inter-
organizational solutions. They include Teece or Langlois and Robertson, who have
found vertical integration of several firms as solutions to longer delays or varieties of
contracts as solutions to shorter delays. We observed that delays when caused by
strategic intentions or by changes in market tastes or through increased divisions of
labor, all of which appear consequent to Ecom, bring about uncertainties of expectations
about future. The received argument refers to the alignment between plans made in the
past and the current states of affairs. The proposed alignment in received theories offers

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