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Ecom and the diffusion of information technology, in general, have been believed to contribute to transformation of value chains internal to a firm and to an industry (Porter, 1985). Such a value chain recognizes the vertical dimension and refers to an industry segment. It was argued (Malone, Yates & Benjamin, 1987) that consequent to transformation of inter-linkages there would be dis-intermediation or the shortening of the circuit in the market. A comparison between the two modes of reaching customers seemed inevitable (Brynjolffson & Smith, 1999). It was believed that the end result of disintermediation would be added value to customers and to the producers. This belief was strengthened by an additional belief in the disutility of a trader. A trader was looked down upon as an irritant causing disruptions and adding significant costs (Benjamin & Wigand, 1995). The trader did not seem to have any contribution to make to the market microstructure. This argument concludes that intermediation could be terminated altogether thus offering to both producers and the consumers additional value through effects such as direct sales, in particular by a dominant producer commanding price or quality (Bailey & Bakos, 1996). This hypothesis of threatened intermediaries, as Sarkar et al. (1995) coined it, is based upon a certain reading of the theory of transactions costs economics (TCE) (Williamson, 1975, 1985; Coase, 1990). Another approach though not far off from the TCE is agency theory, used by Picot, Bortenlanger and Hohrl (1997) to argue that principals henceforth armed with additional information would either dispense away with most of the services hired till date from the agents or, would design stronger and more effective system of incentives and monitoring. This would enable the principal to minimize upon the costs of monitoring and hence agents, such as all the intermediaries, would become obsolete.

Possibly Sarkar et al. (1995) were the first to indicate that intermediations would possibly increase. They renamed such mediations as the cybermediaries. They argued that the proponents of dis-intermediation employed a flawed TCE logic, the latter properly employed would show that mediation must increase in Ecom. In subsequent years empirical studies on the extent of cybermediation by a large number of contributors have pointed out the increasing incidences of mediations (Giaglis, Klein & O’Keefe, 2000; Burton & Mooney, 1998; Meck, 2001; Domowitz, 2001; Chircu & Kauffman, 2000; Story, Straub, Stewart & Welke, 2000). The key paper by Sarkar et al. employed TCE to argue that intermediation would possibly increase consequent upon introduction of Ecom. Most contributors agreed to this formulation by Sarkar et al., and these contributions have enriched the argument based upon TCE. The transactional logic employed has identified mediation as one component in the value chain necessary to reduce the otherwise high costs of transactions.

Taken From : Digital Economy – Impacts, Influences and Challenges