Answer to Question 1
Transaction costs are the total of all costs that a buyer and seller incur as they gather information and negotiate a purchase-sale transaction. Businesses and individuals can use electronic commerce to reduce transaction costs by improving the flow of information and increasing the coordination of actions. By reducing the cost of searching for potential buyers and sellers and increasing the number of potential market participants, electronic commerce can change the attractiveness of vertical integration for many firms.
Answer to Question 2
A commodity item is a product or service that is hard to distinguish from the same products or services provided by other sellers; its features have become standardized and well known.
A products shipping profile is the collection of attributes that affect how easily that product can be packaged and delivered. A high value-to-weight ratio can help by making the overall shipping cost a small fraction of the selling price. A DVD is an excellent example of an item that has a high value-to-weight ratio. Products that are consistent in size, shape, and weight can make warehousing and shipping much simpler and less costly. Commodity items that have an attractive shipping profile include books, clothing, shoes, kitchen accessories, and many other small household items.
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