Virtual Market: Alibaba
Nermine Zarrad (N. Zarrad)
Syrine Jhaider (S. Jhaider)
Oumayma Belaaz (O. Belaaz)
Nada Hamdi (N. Hamdi)
South Mediterranean School: Mediterranean School of Business
Friday, November 23, 2018
OUTlINE Table of Contents
TOC o “1-3” h z u OUTlINE PAGEREF _Toc530736194 h 2INTRODUCTION: PAGEREF _Toc530736195 h 4I.Demand law PAGEREF _Toc530736196 h 41.Increase in number of buyers and income: PAGEREF _Toc530736197 h 4b.Russia: PAGEREF _Toc530736198 h 4c.Brazil PAGEREF _Toc530736199 h 5d.United States of America: PAGEREF _Toc530736200 h 51.Price of related goods: PAGEREF _Toc530736201 h 6II.Supply Law PAGEREF _Toc530736202 h 61.Number of suppliers: PAGEREF _Toc530736203 h 62.Technologies: PAGEREF _Toc530736204 h 7III.Price Determination and the government’s interventions PAGEREF _Toc530736205 h 71.Price determination: PAGEREF _Toc530736206 h 72.Government’s intervention: PAGEREF _Toc530736207 h 7IV.Elasticity: PAGEREF _Toc530736208 h 81.Reputation: PAGEREF _Toc530736209 h 82.Quality of the product: PAGEREF _Toc530736210 h 83.Price variation: PAGEREF _Toc530736211 h 84.Shipping duration, rapidity and cost: PAGEREF _Toc530736212 h 95.More elastic products: PAGEREF _Toc530736213 h 10V.Surplus and Shortage: PAGEREF _Toc530736214 h 101.Surplus: PAGEREF _Toc530736215 h 102.Shortage: PAGEREF _Toc530736216 h 11VI.Well-being and satisfaction: PAGEREF _Toc530736217 h 11VII.Perfect market violation : PAGEREF _Toc530736218 h 121.Virtual market structure: PAGEREF _Toc530736219 h 123.Perfect competition: PAGEREF _Toc530736220 h 123. Assumptions of perfect competition in virtual market PAGEREF _Toc530736221 h 14a. Large numbers of sellers and buyers PAGEREF _Toc530736222 h 14VIII.Critical Thinking: PAGEREF _Toc530736223 h 16IX. Reference list : PAGEREF _Toc530736224 h 16
INTRODUCTION:Aliexpress is an online retail service based in China that is owned by Alibaba, launched in 2010, offer products to international online buyers. it is the most visited e-commerce website, facilitates small businesses to sell to customers all over the world, sellers are independent and can be either companies or individuals. Actually, AliExpress does not sell products directly to consumers it directly connects businesses with buyers. Moreover, Alibaba is using AliExpress to expand its reach outside of Asia.
Demand lawAlibaba’s is a very well know online store internationally but most of its customers are from the following countries: Russia, Brazil and United states.
Increase in number of buyers and income:Russia:According to j’son & Partners Consulting, within in the past few years there is an increase in using and purchasing from online stores along with the fact that Aliexpress is ranked 2nd as one of the most used online shopping sites in Russia as stated by similiarweb.com. There is also an undeniable raise in the average minimum wage!
Which induce a shift to the right of the D curve in the Russian market.
As seen in Statista there is an increase in usage of online shopping in Brazil with Aliexpress ranked as the second most visited and used online shop. The minimum average wage have also increase in the past couple of years.
The D curve shifts to the right due to these two factors.
United States of America:People is the USA are keener in using online shops rather than going out and getting the goods they desire, thus, the great increase in using online shopping stores. Despite strong competitors, such as E-Bay and Amazon, Aliexpress is considered one of the top 10 most used sites. The minimum average wage is considered constant in consequence there is no effect on the market.
The Demand shifts to the right; an increase in both price and quantity.
Figure 1The Demand and quantity curve for Alibaba considering the factors # of the sellers and the income
? in number of sellers ? in the income of these sellers: the demand curve shifts to the right
Price of related goods:
Shipping is considered a complement to the good, since you do need a mean of transferring the products to the customers. The shipping fees are considered quite high compared to the actual price of the good which discourage the customers from buying the product.
Figure 2 The demand curve for Alibaba considering the complements factor
Move along the Demand curve to a point with lower price and a higher Quantity.
Supply LawNumber of suppliers:
Due to advanced technologies people are more interested on selling their goods online via virtual markets which increase the number of suppliers for the last party. It is especially the increase in drop shipping that is important due to the growth in sale for e-commerce markets.
It’s a shift to the right for Supply curve.
Technologies:According to Jeff Zhang the Chief technology Officer, the making of products is taking less and less time. Thanks to the technology that they perfected and made better, a product that would usually take three months to launch is only taking just a few days to do so.
This factor shifts the supply curve to the right!
Price Determination and the government’s interventionsPrice determination:Sites like Alibaba are quite popular for their very humble cheap prices. A raise in price that is over the top or unaccepted by the customers, results in the governments intervening by filling a lawsuit against the company. A lawsuit has already been filled before against Alibaba, because of several suppliers not following the pricing rules thus the company decided, thanks to the government’s intervention, to stress on the rules.
Alibaba encourage its customers to buy in bulks, since a maximum order quantity (MOQ) should be followed. In addition to that, buying one single item of a good costs much more than just buying a mass of it.
In this Chinese based site, the tax is in harmonization with the value of the good and from which country (your own location) you are buying. For example, if in country (A) the tax policy is at x$ when buying any item with a price under x$ it will be tax free.
Elasticity:According to various articles and studies, the demand is very elastic due to specific phenomenon: reputation, quality of the product, variation in the price, and shipping duration, rapidity and cost.
Reputation:Various articles showed that reputation for e-commerce and especially Aliexpress is depending on the quality of items sold and received by the customer. In fact, when a customer receive a product and figure out that it is different from what they expected according to the images published in the site, bad reputation will be assigned to Aliexpress.
If AliExpress’s reputation is under-rated, customer will not be attracted by its items and therefore the will be no goods sold. That way, reputation is an important criteria that has negative consequences on elasticity making the demand curve more elastic.
Quality of the product:
As many researches showed, delivering a product to customers and ensuring their satisfaction is highly related to a high product quality. If the customer receive a product expected to have a certain quality and then the delivery is different, this customer would not buy another product. Knowing that a bad quality influences customers, the demand will be much more elastic.
Usually, higher prices affect negatively the demand making it more elastic and precisely for luxury goods. In fact, when a seller starts selling at low prices to attract buyers and then increase the price buyers will be sensitive to such change and therefore, the demand will be very elastic mostly for goods with a bad quality. Suppliers offering a high quality product choose to adopt such a strategy aiming to attract buyers being confident that rising the prices would not lead to a huge change in the demand. Presenting a good quality for consumers will justify a rise in the price.
As an interpretation of this observation, the perception of buyers over the price variation is subjective depending on his needs, wants and even income.
Shipping duration, rapidity and cost:
Even if the product is very interesting and likely to be bought, the shipping cost highly demotivate the buyer. This demotivation will change the behavior of the demand and therefore will be much more elastic. Shipping duration and rapidity have also same negative consequences over the demand.
Various researches also showed that consumers far from suppliers place and in our case in China are less attracted to buy goods from AliExpress because of the shipping cost for instance: it is the case of other contients like Africa, United States and even Europe. People living in Asia will have to pay less shipping cost and will have to wait less time to receive their goods. Such criterias are taken into consideration by buyers and can be very negative for the elasticity of the demand making it more elastic.
Figure SEQ Figure * ARABIC 1 influence of elasticity over the demand and supply curve
More elastic products:According to an article, the most elastic products are:
Basic building materials
Motorcycle parts and accessories
Desktop computers and servers
In another hand, the supply curve is not that elastic because the demand is very abundant so the suppliers are rarely influenced by any phenomenon cited before.
Surplus and Shortage:
We rarely observe a surplus in the demand and supply curve but it can happen for bad quality goods. Some supplier’s present goods with a low price to attract buyers but to compensate it they sell bad quality products. Consumers choose to stop buying those products which create a surplus: supply is higher than the demand.
The number of demand is increasing all around the world, which sometimes create a shortage. We can observe this mainly for very famous and liked products but also during Black Friday’s for example or even during discounts and promotions. Lately, Aliexpress organized a competition on her site encouraging people to buy products. The more you buy, the more you have the chance to win 1000 $.
Suppliers are often prepared to such a huge demand increasing their stocks but it can happen that the demand exceed expectations and a shortage happen: OUT OF STOCK.
Well-being and satisfaction:An interview with the owner of Aliexpress and an analysis of the site showed that comments are highly related to consumer’s well-being and satisfaction. Analyzing comments and mainly focusing on the vocabulary used we can construct a conclusion.
Maggie X. Chen and Min Wuz, in their article “The Value of Reputation in Trade: Evidence from Alibaba” showed vocabulary examples used by consumers related to their satisfaction:
Negative comments: “bad”, “poor”, and “awful”
Positive comments: “good”, “excellent”, and “superior”
That way, we can conclude that people who used negative vocabulary words are not satisfied as they wished to be contrary to those who used negative vocabulary words.
Perfect market violation :
Market will reach an equilibrium in which the quantity supplied for every product or service equals the quantity demanded at the current price. This equilibrium will be optimum, meaning that nobody can be made better off by exchange without making someone else worse off
Virtual market structure:Virtual markets has two entities : agents and goods -Agents : sell , buy , consume and produce goods in the economy , the price of good is the exchange ratio , a consumer is an agent that can buy, sell and consume goods, and the consumer’s preference for consuming bundles of goods is related to its utility function .In virtual market, consumers don’t only consume but also supply goods for input goods. It means that people supply like labour forces or capital to companies.-A producer is an agent that can transform some sorts of goods into some other using technology. The technology specifies the combinations of inputs and outputs possible for the producer. every producer can produce only one kind of goods, so a producer agent can have only a single production function .
Perfect competition:There are several features of AliExpress which make the market competitive :-Many buyers thousands of people have access to viewing items listed on AliExpress .-There are also many sellers who are free to enter the market.-The goods offered for sale are largely the same.
<=> each buyer and seller is a price takers that is why the demand curve is perfectly elastic
-Freedom of entry and exit .-6350246641*An increase in firms costs
The AC curve will increase therefore AR< AC
Firms will now start making a loss and therefore firms will leave the market <=> supply to fall causing prices to increase.
-57153417570Figure SEQ Figure * ARABIC 2: Perfect competition diagramFigure SEQ Figure * ARABIC 2: Perfect competition diagram-63492723603. Assumptions of perfect competition in virtual marketa. Large numbers of sellers and buyers-Product homogeneity: The technical characteristics of the product as well as the services associated with its sale and delivery are identical<=>The assumptions of large numbers of sellers and of product homogeneity imply that each seller and buyer is a price-taker: its demand curve is elastic, indicating that the firm can sell any amount of output at the prevailing market price, The demand curve of the individual firm is also its average revenue and its marginal revenue curve: -285750159385center2238375Figure SEQ Figure * ARABIC 3: Price TakerFigure SEQ Figure * ARABIC 3: Price Taker
-Free entry and exit of firms: freedom of movement in and out-Profit maximization
-No government regulation
-Perfect mobility of factors of production-Perfect knowledge
In addition to that the equilibrium in perfect competition is the point where market demands will be equal to market supply.at this point the price will be : – In the short run :equilibrium will be affected by demand. -In the long run :both demand and supply of a product will affect the equilibrium <=> A firm will receive only normal profit in the long run at the equilibrium point.
Critical Thinking:In our example we conclude that aliexpress is a virtual company that have not only advantages but also disadvantages for example There are many different suppliers that sell a variety of products for competitive prices although sometimes, these products do not match the customer’s quality and size expectations.Unreliable SuppliersIts recommended for any dropshipper to do a proper evaluation of the suppliers they want to use on Aliexpress. Some of the suppliers on Aliexpress are unreliable and may affect the business.Some will ship poor quality products or products that don’t match the description or the images you saw while placing the order. Copyright infringement issuesDropshiper should be careful when selecting products on Ali express, there are still suppliers who infringe copyrights of other brands and resell product of the same but if poor quality is baring the original brand name. This may bring problems.Return PolicySince we all know Aliexpress is a retail website, extended Alibaba, there is no unanimous return policy implementation (Pros And Cons Of Aliexpress Dropshipping.
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