DISCUSSION BOARD TWO

Discussion Board Two

Liberty University
Business 620: Global Economic Prospective
May 22, 2014

DISCUSSION BOARD TWO

Discussion Board Two

What are advantages and disadvantages of estimating demand by virtual shopping?
The recent advances in technology have dramatically changed the commercial marketplace.
Consumers are able to instantaneously access any companys online store and instantly make
purchases. These changes in accessibility, in comparison to brick and mortar stores, have
dramatically transformed the nature of shopping. Cullen (2009) describes how companies have
the ability to generate a virtual storefront, and they are not restricted by geographic location or
time. In addition, companies are able to expand their market by simply increasing their market
reach whereas traditionally this could be very costly and time consuming. Similarly, it is also
easier for virtual companies also to generate a brand image through website design, product
packaging, and marketing tactics (Cullen, 2009). Although the virtual marketplace has numerous
benefits, there are also difficult challenges for companies such as estimating demand.
Traditionally, demand could be estimated based on its elasticity and the characteristics of
complementary and substitute goods. These methods can still be used, but identifying the
elements of a products demand has become a lot more difficult. Virtual shopping has fostered a
much more competitive marketplace because online shoppers are able to instantly compare
prices of all competitors before making a purchasing decision, whereas at physical stores this
would be much more time consuming.
In response to these changing characteristics, many researchers have studied how
estimate demand in the virtual marketplace. Baye, Gatti, and Kattuman (2004) describe
numerous studies that illustrate the effectiveness of demand models, which examine how
consumers compare prices and product information to make online purchases. Models such as
the Clearinghouse model can be effectively utilized to predict the level of consumer
responsiveness in correlation to pricing changes among competitors and overall changes in

DISCUSSION BOARD TWO

demand (p.3-5). Baye et al. (2004) explain how models like this help companies accurately
identify demand determinants and aid them in lucratively reacting to the gathered information
(p.14).
Although research advancements in this area have aided companies to estimating
demand, there are still many disadvantages of estimating demand in the virtual marketplace. For
example, the online marketplace is constantly changing and companies cant simply open a store
in a prime geographical location and be successful. Virtual stores must consider numerous
factors to estimate demand such as the amount of competitors, the degree of price rivalry, the
success of various advertisement strategies, and trending URL and keyword searches. These
dynamic characteristics make it difficult for a virtual store to effectively obtain determinants of
demand (Cullen, 2009). In addition, price comparison websites have been developed to help
consumers compare prices, and these websites are not always accurate and can skew a
companys product demand (Baye et al., 2004).
It is critical to recognize the market is constantly transforming. As technology continues
to advance and the increase of virtual shopping continues to rise, buying trends will also change.
There will always be advantages and disadvantages to these advancements, and in order to strive
companies must be able to swiftly react and proactively adapt.
How important is saving for a household and the economy? How much should be saved?
Saving money is essential for long term stability in any instance. Whether an individual
household is being discussed or the entire economy, it is important to understand where savings
come from and how it affects financial stability.
From an individual household perspective, savings come from a familys financial
budget. A family must budget the money it receives via wages, pensions, and inheritance etc.,
and the money it spends. If a household saves effectively, it will spend less than it earns and be

DISCUSSION BOARD TWO

able to deposit funds into bank and saving institutions. It is a common rule of thumb for
households to have at least three months of expenses saved for unforeseeable situations. In
addition, responsible saving tactics successfully aid households in being able to prepare for life
events such as college, purchasing a house, having children, and retirement. When a household
efficiently budgets its savings, it will also have clear visibility of its spending habits. This can
pinpoint irresponsible spending habits, help a household reallocate its expenses and spending
decisions, and can increase comfortability with retail spending.
The economys savings is dramatically affected by the saving and spending habits of
individual households. Putterman (2013) explains how, The savings of the entire economy are
channeled through intermediaries [stocks, banks, etc] into investment [capital formation]; in an
economy total savings [the supply chain of capital] equals the total investment [the demand for
capital]." It is important to recognize the direct connection between individual savings and
spending and economic health. For example, an article called The Economic Impact of Increased
US Savings, by Atkins and Lund (2009), describes how household leverage dramatically
increased through 2002 to 2007, which caused the wealth effect where individuals were able to
spend and borrow more money without saving as much. When the housing bubble popped, the
value of homes, stocks, and other assets radically decreased. Atkins et al. (2009) explains how
when households began reducing their debt and saving more in reaction to the housing bubble
burst, spending plummeted and ruined the economy. Since the beginning of the recession in 2008
many households have regained financial stability, but Akins et al. (2009) firmly states how the
economy will only continue to mend itself as long as the income rate steadily grows. If the
income rate progressively grows then households will continue to recuperate, and individuals
will increase precarious financial investments such as stocks and will increase spending, which
will in turn increase the economys strength.

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DISCUSSION BOARD TWO

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References

Atkins, C., & Lund, S. (2009, Mar). The economic impact of increased US savings. McKinsey
and

Company.

Retrieved

from

http://www.mckinsey.com/insights/economic_

studies/the_economic_impact_of_increased_us_savings
Baye, M., Gatti, R., & Kattuman, P. (2004, Dec). Estimating firm-level demand at a price
comparison site: Accounting for shoppers and the number of competitors. 1, 1-46, doi:
10.1145/1007965.1007968
Cullen, T. (2009). Virtual storefronts, real advantages & disadvantages. World Press. Retrieved
from http://businessamp.wordpress.com/2009/02/22/virtual-storefronts-real-advantagesdisadvantages
Putterman, L. (2013). Capital and Savings [course lecture notes]. Retrieved from:
http://www.econ.brown.edu/fac/louis_putterman/courses/ec151/Chapter_11.pdf