U.S. Bullish on B2B

Commenting on a U.S. Federal Trade Commission (FTC) report issued Thursday, chairman Robert Pitofsky said business-to-business (B2B) marketplaces offer “great promise” in terms of cutting costs, better organizing business processes, and improving competition.

While stating that B2B exchanges do not as a rule raise antitrust concerns, the report notes that some industry ventures, notably those with “high levels of industry ownership” or “substantial minimum-purchase requirements,” are likely to attract scrutiny from regulators.

“The antitrust concerns B2Bs may raise are not new,” Pitofsky said, adding that “B2Bs are amenable to traditional antitrust analysis.”

Pitfosky went on to say that “the report does not warn of insoluble problems, but rather lays the foundation for identifying and addressing circumstances that warrant antitrust scrutiny.”

Operating Rules

Collaboration among firms could raise competitive concerns, the FTC said. However, the report added, these concerns can be addressed by existing antitrust laws as well as “well-crafted B2B operating rules.”

Among the guidelines the FTC recommends taking into account are the market share of the B2B participant-owners, the restraints on participation outside the B2B and the interoperability with other B2Bs.

Marketplace Prevails

Market forces are sorting out issues such as how many and which B2Bs will succeed, the extent of the potential savings, and the relationships among the various marketplaces, the report said.

According to Forrester Research, the trend toward online alliances has resulted in an “unsustainable profusion” of marketplaces.

Credit Suisse First Boston estimates that B2Bs will control $3 trillion (US$) in purchases a year if all evolve as planned. In the past year alone, more than 60 coalitions made up of almost 300 companies have formed online marketplaces.

Covisint Approved After Review

The FTC last month completed its first antitrust review of a B2B, when it approved an automotive venture by General Motors Corp., Ford Motor Co., DaimlerChrysler AG, Renault SA and Nissan, joined by technology partners Commerce One, Inc. and Oracle.

The FTC reported that it could not say that the venture, known as Covisint, would cause competitive concern because it has not yet adopted rules or terms, and because its founders account for a large share of the automobile market.

The FTC initially expressed concern that the automakers would use the exchange to influence pricing and purchasing practices. The commission still plans to watch the venture as it develops.

Covisint will link more than 30,000 suppliers, and expects to handle as much as $300 billion in transactions each year.

Major Exchanges Coming

Giants in other industries are joining the trend. On Thursday, a group including American Airlines, United Airlines and British Airways said it will merge its online exchange with a B2B venture led by major aerospace manufacturers, a move designed to cut costs between airlines and their suppliers.

The FTC report, “Entering the 21st Century: Competition Policy in the World of B2B Electronic Marketplaces,” summarizes the results of a workshop the commission held last June.

The report and materials from the workshop are available on the FTC’s Web site.

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