Basic E-Commerce Theory

Abstract

This chapter comprehensively combines the laws, regulations, policies, and other theories contained in the “visible hand” of the government, as well as the theories on the demand side, the supply side, and the platform side contained in the “invisible hand” of the market, and profoundly interprets the principles of “enabling government” and “efficient market” and how they work together in the field of e-commerce. It helps readers to understand the knowledge of demand side, supply side, and platform side contained in the market theory of e-commerce and grasp the influence of government theory and market theory on e-commerce.

Knowledge Map of this Chapter

FormalPara Introductory Case

In 2022, in order to thoroughly implement the decision and deployment of the Party Central Committee and the State Council; give full play to the advantages of e-commerce in linking production and consumption, online and offline, urban and rural areas, and domestic and foreign; coordinate the prevention and control of epidemics and the promotion of Chinese New Year consumption; and ensure that the people spend a safe, healthy, joyful, and peaceful Chinese New Year festival, the Ministry of Commerce, together with the Central Internet Information Office, the Ministry of Industry and Information Technology, the General Administration of Market Regulation, the Ministry of Commerce, together with the Central Internet Information Office, the Ministry of Industry and Information Technology, the General Administration of Market Regulation, the State Post Bureau, and the China Consumers’ Association, will guide e-commerce and related enterprises in organizing the 00222022 National Online Chinese New Year Festival”, which will follow the principle of “government guidance and market-oriented operation” and follow the national “one piece” approach. The event will follow the principle of “government-directed, enterprise-oriented, and market-based operation” and will be carried out in accordance with the “1 + N” organizational model of “one chessboard” and key regions as a whole. On the whole, the “New Year’s Eve Festival” showed the following characteristics.

First, the goods and services category supply enough. All regions will guide the e-commerce platform enterprises to ensure that rice, noodles, oil, meat, eggs, milk, fruit, vegetables, and other important livelihood commodities and epidemic prevention materials supply sufficient. At the same time, more branded, quality, healthy, and smart products will be introduced, as well as catering packages and customized New Year’s Eve dinners suitable for different groups of people, and services such as “online booking, delivery to home”, and “no closing time for the Spring Festival, New Year’s Eve goods sent home” will be provided.

Second, the supporting activities are fancy and unique. All places regard “New Year’s Eve” as an important platform to promote consumption and industrial development and come up with real tricks to carry out supporting activities.

Thirdly, the policy measures are sufficient and beneficial. Focusing on food, accommodation, travel, tourism, entertainment, and shopping, some places and enterprises are increasing their promotion, marketing, and service efforts through various forms of concessions. Participating platform companies will also launch new product debuts, trade-ins, full discounts, seconds, direct reductions, and other activities to increase investment, so that consumers can really get the benefits.

Fourth, consumer rights protection is strong and the environment is excellent. All kinds of activities participating in the “New Year’s Eve” will be marked with a unified logo, so that consumers can see it at a glance. The Ministry of Commerce will jointly guide the unit, in accordance with the division of functions, to ensure the high quality of rich commodities, digital business environment, good business standard order, smooth and timely delivery, and consumer rights protection.

Fifth, the epidemic prevention and control measures are real and more powerful. All regions will urge and guide the enterprises participating in the “New Year’s Eve” to strengthen the main responsibility of epidemic prevention and control, strengthen personnel protection and daily monitoring, and standardize the epidemic prevention procedures in the process of warehousing, sorting, and distribution of commodities, especially the strict implementation of the whole process of cold chain epidemic prevention measures. At the same time, new terminal retail facilities were brought into full play to reduce contact between personnel and reduce the risk of epidemic transmission.

Consider:

• 1. What are the five characteristics of the “New Year’s Eve” that have brought convenience to people’s lives?

• 2. What roles do the government and the market play in the New Year’s Eve festival?

There have been three industrial revolutions from the age of the steam engine to the information age, and these three industrial revolutions have greatly advanced history. The fourth industrial revolution is a change between man and machine, man and intelligence. As an important force in promoting national economic and social development, e-commerce will grasp the opportunities of the fourth industrial revolution. E-commerce is characterized by the connection between the Internet and offline, the rapid upgrading of production and consumption, the simultaneous development of urban and rural areas, and the synergistic promotion of domestic and international. E-commerce will become a powerful contributor to growing the domestic market, enhancing the discourse in the international market, and promoting new development to build a new pattern. In order to bring into play the comparative advantages of the e-commerce sector, an “effective market” and a “responsive government” need to work together.

An “efficient market” means that the market forms a price system based on the decisive role of the resource allocation method, which reflects the scarcity of factors and thus leads enterprises to choose to invest in industries and technologies that match their own development according to their comparative advantage. The formation of competitive advantage requires enterprises to give full play to their position as market players and to develop e-commerce under a series of market theories.

A “responsive government” means that under the guidance of Xi Jinping’s theory of socialism with Chinese characteristics in the new era, the government formulates a series of plans, policies, rules, and regulatory guidelines related to e-commerce. By providing enterprises with institutional arrangements and infrastructure suitable for their own development, it supports them in transforming their comparative advantages into competitive advantages.

A country can only achieve rapid, inclusive, and sustainable growth if it uses both hands, the market and the government. It is only with the combined effect of an “effective market” and a “responsive government” that enterprises can achieve longer-term development in the race track of e-commerce (Fig. 2.1).

Fig. 2.1

The invisible hand and the visible hand work together

2.1 Government

In the past, Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era guided the government to use e-commerce as a supplementary tool to formulate e-commerce-related planning, policies, and regulatory rules based on the new development stage, development concept, and development pattern. By providing the right infrastructure and institutional arrangements for enterprises, the government can enhance the core competitiveness of enterprises in the e-commerce industry and optimize the e-commerce-related industries. These initiatives lay a solid foundation for deepening the integration and innovative development of e-commerce in various fields, promoting the digital transformation of the economy and society, and building a modern distribution system.

2.1.1 Guiding Ideas

2.1.1.1 Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era

The Communist Party of China, represented by Comrade Xi Jinping, has insisted on combining the basic principles of Marxism with the concrete reality of China and the excellent Chinese traditional culture, adhering to Mao Zedong Thought, Deng Xiaoping Theory, the Important Thought of the “Three Represents”, and the Scientific Development View, and profoundly summarizing and fully applying the historical experience since the founding of the Party. From the new reality, Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era has been created. Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era is contemporary Chinese Marxism and twentyfirst-century Marxism, which is the essence of Chinese culture and the Chinese spirit, has achieved a new leap in the Chinization of Marxism.¹

Under the leadership of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, the construction of e-commerce has also entered a new phase and opened up a new situation (Table 2.1).

Table 2.1 Building e-commerce under Xi Jinping thought on Socialism with Chinese Characteristics for a New Era

2.1.2 E-Commerce Development Plan

2.1.2.1 E-Commerce 14th Five-Year Plan

COVID-19 has made the global environment even more complex and the Chinese Communist Party and the country have faced major challenges, but during this period the main objectives of the 13th Five-Year Plan for E-Commerce have been successfully completed. The booming development of e-commerce has strengthened the domestic market, driven the innovation and entrepreneurship of talents, and provided the strength to fight poverty and enhance the level of opening up to the outside world. As we enter the 14th Five-Year Plan period, e-commerce will continue to be guided by Xi Jinping thought on socialism with Chinese characteristics for a new era under the leadership of the CPC Central Committee and the State Council to achieve the development goals of the 14th Five-Year Plan period and complete the main development tasks for the 14th Five-Year Plan period.

• (1) E-commerce development targets for the 14th Five-Year Plan

During the 14th Five-Year Plan period, the country has proposed new targets for the development of e-commerce in accordance with the latest developments at home and abroad.

The high-quality development of e-commerce in China is set to achieve significant results by 2025. The development of the e-commerce sector has improved the competitiveness of the companies involved and driven further growth in e-tailing.² E-commerce promotes the acceleration of the digital transformation of society, provides a key channel for the employment and entrepreneurship of talented people, and is an important source of raising the income of the population and meeting the needs of the people for a better life.

By 2035, e-commerce will truly be an important driver of China’s economy, technology, and a significant leap in overall power. E-commerce, as a part of people’s lives, will drive the efficient allocation of resources in the industrial chain and supply chain. E-commerce will become an important part of China’s modern economic system and provide a powerful boost to economic globalization (Table 2.2).

Table 2.2 Main indicators for e-commerce development in the 14th Five-Year Plan

• (2) Major development tasks of e-commerce during the 14th Five-Year Plan period (Table 2.3).

  Table 2.3 “Fourteenth Five-Year Plan” during the main development tasks of e-commerce

2.1.3 E-Commerce-Related Policies

2.1.3.1 Industry Policies

1999 was the first year of e-commerce in China, and in the next 20 years, China’s e-commerce experienced three development periods: the incubation period (1999–2005), the innovation period (2005–2015), and the leading period (2015–2019). The main feature of the incubation period is the survival of the fittest, which has not yet formed a fixed development model and various innovations have sprung up; the main feature of the innovation period is the winner is king, which gradually forms the e-commerce ecosystem by relying on the dividend released by the Internet population; the main feature of the leading period is the later comes first, which is dominated by content e-commerce and social e-commerce and continuously penetrates into agriculture and industry. The international influence of Chinese e-commerce has gradually increased since then. The current development of e-commerce in China continues the momentum of the third phase, with social e-commerce, B2B e-commerce, cross-border e-commerce, rural e-commerce, and silk road e-commerce developing rapidly and taking the lead in the world.

As a characteristic of China’s socialist market economy, at different periods of economic development, the Chinese government has promulgated overall national five-year plans to set the overall goals and directions for the national economic development vision, and based on the five-year plans, each industry sector has formulated corresponding five-year plans with the current situation and characteristics of the industry. In 2007, the e-commerce industry introduced its first five-year plan, and each five-year plan for e-commerce is both a profound summary of the previous five years and a target and direction for the next five years. At each stage of development, the development of e-commerce in China is guided by the five-year plan, and a series of supporting policies are introduced to support, encourage, and guide it, taking into account the specific reality at each point of time. With the five-year plan as the main line, the study of China’s e-commerce development can clearly clarify the development of e-commerce, as well as the industry policy direction.

• (1) “11th Five-Year Plan” period

In June 2007, the National Development and Reform Commission and the Information Technology Office of the State Council jointly issued China’s first “11th Five-Year Plan” for the development of e-commerce. The Plan proposed six major tasks and six key projects (Tables 2.4 and 2.5).

Table 2.4 “11th Five-Year Plan” general objectives, six major tasks, and six key projects

Table 2.5 E-commerce development during the “11th Five-Year Plan” period

• (2) “12th Five-Year Plan” Period

In March 2012, the Ministry of Industry and Information Technology formulated and released the “12th Five-Year Plan for E-Commerce Development”, which is a guiding document to further promote the development of e-commerce in China’s “12th Five-Year Plan” period, putting forward the “12th Five-Year”. This is a guiding document to further promote the development of e-commerce in China’s 12th Five-Year Plan period. At the same time, in order to ensure that the objectives of the “12th Five-Year Plan” period are achieved, nine key tasks and nine corresponding columns are proposed in the document (Tables 2.6 and 2.7).

Table 2.6 The general objectives of the 12th Five-Year Plan, the nine key tasks, and the corresponding nine columns

Table 2.7 “13th Five-Year Plan” general objectives, five major tasks, and four areas of work of the 17 special actions

During the “12th Five-Year Plan” period, China has realized the application and promotion of mobile e-commerce in various fields, accelerated the pilot application of e-commerce in various industries, and achieved independent research and development of key intelligent core technologies. The application of e-commerce in China has given birth to a variety of different industries and fields, provided new ideas for poverty eradication, opened up new patterns of domestic and international cooperation and competition, and promoted economic growth in multiple senses.

• (3) “13th Five-Year Plan” period

In December 2016, the Ministry of Commerce, the Central Internet Information Office, and the Development and Reform Commission issued the “13th Five-Year Plan” for the development of e-commerce and proposed development goals and five major tasks and 17 special actions in four areas of work.

During the 13th Five-Year Plan period, China’s e-commerce has driven the deepening integration and co-development of the real and digital economies in all dimensions, accelerating the resolution of major social events due to its large scale, rapid growth rate, and wide scope. Digital life and work patterns have led to the explosive growth of online service e-commerce and the rapid development of all modes of e-commerce.³

• (4) “14th Five-Year Plan” period

In October 2021, the Development and Reform Commission of the Central Internet Information Office of the Ministry of Commerce issued the “14th Five-Year Plan” for the development of e-commerce. The report provides an in-depth interpretation of the development of China’s e-commerce industry and future development trends and analyzes the opportunities and challenges facing the industry. Based on this, the goal of e-commerce development in this period and the seven major tasks that should be achieved to complete the goal were proposed (Table 2.8).

Table 2.8 “14th Five-Year Plan” main objectives and seven major tasks

During the 14th Five-Year Plan period, e-commerce will continue to penetrate and integrate with the characteristics of various industries and further develop with the characteristics of multiple modes and cross-depth between industries, becoming a representative of the emerging economic model and promoting China’s economic development. Based on the positive impact of e-commerce on the national economy, the country is also strengthening its policies to help and support the development of e-commerce.

The development of e-commerce in the 14th Five-Year Plan period will be guided by Xi Jinping’s thought of socialism with Chinese characteristics in the new era, based on the new development stage, implementing the new development concept and serving to build a new development pattern, focusing on the three positioning of e-commerce connecting online and offline, bridging supply and demand, and docking domestic and foreign markets, and giving e-commerce a new mission of promoting “high-quality development of digital economy” and helping “achieve common prosperity”.

2.1.3.2 Tax Policy

E-commerce is an innovative transaction mode with the development of technology and network. From the perspective of the transaction, it is substantially the same as traditional commerce, so under the traditional taxation system, e-commerce should rightly belong to the scope of taxation. However, due to the characteristics of virtuality, invisibility, and intangibility, the traditional taxation system cannot be fully adapted to this emerging transaction mode. At the same time, because of the different preferential policies given to e-commerce enterprises by various local governments through fiscal policies, there is no uniform standard in the actual collection and management, which eventually manifests as different tax burdens for online and offline, giving rise to misunderstanding.

With the expansion of the e-commerce transaction scale, the problem of e-commerce tax leakage and tax fairness principle has become more and more important. In November 2016, the General Office of the State Council on Promoting the Innovation and Transformation of Physical Retailing explicitly proposed to “accelerate the construction of a supervisory system that is synergistic between the production and circulation fields and integrated between online and offline” and “create a tax environment for fair competition between online and offline enterprises”. In other words, any form of trade should equally bear the same tax burden and have a fair tax environment and market competition. In August 2018, the E-commerce Law of the People’s Republic of China, which was voted at the fifth meeting of the Standing Committee of the 13th National People’s Congress, plays an important role in regulating the taxation of e-commerce (Table 2.9).

Table 2.9 Tax-related regulations in the Electronic Commerce Law of the People’s Republic of China

2.1.3.3 Talent Policy

The development of e-commerce industry can’t be separated from the support of e-commerce talents. In the “14th Five-Year Plan” for the development of e-commerce, it is clearly proposed to “develop the e-commerce talent market in a gradient”, to improve the talent training system, strengthen the talent training mode, and provide a better employment environment for talents and thus strengthen the supply of diversified talents. Through a variety of ways to improve the attractiveness of the e-commerce industry and field in all aspects.⁴

• (1) Talent industry policy: Iterative optimization, release effectiveness, and guide high-quality e-commerce talent training.⁵

The high-quality development of e-commerce is built on the basis of the high-quality development of e-commerce talents. The top-level design further strengthens the development concept of high-end leading in the cultivation of high-quality talents in e-commerce and improves the classification of jobs in the field of e-commerce, occupational standards, and the evaluation standard system of e-commerce-related abilities. From policy formulation, responsibility in place, to the gradual improvement of the breeding and employment mechanism, to promote China’s e-commerce high-quality talent training work to achieve fruitful results. Policy optimization further strengthens departmental collaboration, forms policy synergy, explores the introduction of corresponding e-commerce talent support policies, creates an environment conducive to the development of talent, encourages diversified employment of talent, protects the employment rights of talent, and further precise policy, release the effectiveness of the e-commerce high-quality talent cultivation of the incentive policy to the integrated incentive policy, so as to maximize the utility of incentive policy. Demonstration-driven, focusing on how to pull up the level of talent within the e-commerce industry, enhances the industry’s leading enterprises to play a leading role, so as to attract more high-level high-end talent into the industry. At the same time, through policy guidance, for returning migrant workers, college students, veterans, and other types of hometown personnel, to carry out hierarchical cultivation, training can lead to the development of rural e-commerce new electricians.

• (2) Collaboration of regional parties: Two-line interaction to build a high-performance e-commerce talent market

E-commerce talent market is an important channel for the employment of e-commerce talents, and a diversified and efficient e-commerce professional talent market should be established through various flexible means. On regional collaboration, relying on the eastern provinces’ e-business industry and talent advantages, facing the central and western regions and other relatively weak e-business industries, launching multi-regional collaboration such as east–west cooperation and north–south cooperation, increasing industrial assistance and talent support, increasing efforts to cultivate the e-business talent market in central and western regions, cities, counties, and rural areas, and optimizing the employment process within the e-business industry, such as business incubation parks and employment resource matching services. On the two-line interaction, we make full use of online e-commerce talent market resources, quickly dock with school-enterprise resources, and provide 24/7 e-commerce talent employment services. Offline, e-commerce associations, and societies at all levels and talent exchange markets around the world, familiar with the needs of e-commerce enterprises, should further play their great role in matching e-commerce talents. At the same time, universities, as an important platform for talent output, regularly hold multiple talent markets to collaboratively solve the problem of e-commerce talent output.

• (3) Industry-academia-research multi-party collaboration: Six-in-one, build a multi-level e-commerce talent system

E-commerce high-quality talents need six-in-one, multi-resource synergy, encourage higher education institutions, research institutions, training institutions, and e-commerce enterprises, using order training, embedded training, online training, and other ways to cast the hierarchy of e-commerce talent system, and finally realize the linkage between talents.

At the level of colleges and universities, as the main force for training e-commerce talents, colleges and universities should further grasp the essence of the Plan and carry out targeted and forward-looking training. College faculty construction, professional construction, and specialized personnel training should keep pace with the times and resonate with industrial development, so as to play a prominent role in the development of e-commerce in the 14th Five-Year Plan period. At the enterprise level, e-commerce platform enterprises are encouraged to increase education and training efforts, play a close connection between platform enterprises and the market, the obvious advantage of the talent gathering effect, increase e-commerce knowledge and skills education and training, and actively develop e-commerce application courses to improve the coverage and effectiveness of training. Encourage e-commerce enterprises and universities to cooperate deeply, using order training, embedded training, and other flexible ways to meet the needs of enterprise talents.

With the empowerment of digital technology, promote the digitization and online e-commerce quality education resources of government, colleges and universities, training institutions, etc., increase the openness to the society, and encourage the realization of all-weather e-commerce education through various ways such as webcasting. At the same time, online public welfare classes are carried out for the central and western regions and rural areas to empower the development of e-commerce in the sinking market.

• (4) Innovation-driven, entrepreneurship-driven, to enhance the ability of high-quality e-commerce talent

Innovation and entrepreneurship play an important role in improving the comprehensive ability of e-business talents, and the innovation-driven strategy should be further strengthened to encourage pragmatic entrepreneurship and enhance the ability of high-quality e-business talents. On the one hand, it is necessary to further strengthen the leading role of innovation and entrepreneurship in the cultivation of e-commerce talents; on the other hand, it is necessary for all social parties to actively coordinate resources, effectively integrate theories, methods, technologies, and means of innovation and entrepreneurship in various fields and links of e-commerce, strengthen innovation-driven, emphasize entrepreneurship-driven, and integrate into Civic Education in order to effectively enhance the comprehensive ability of e-commerce talents.

Innovation and entrepreneurship competitions can catalyze the cultivation of e-commerce talents to a great extent. Therefore, we should strengthen the collaboration of innovation and entrepreneurship competitions such as China International College Students’ “Internet+” Innovation and Entrepreneurship Competition, “Challenge Cup” National College Student Business Plan Competition, and China National College Student “Innovation, Originality, and Entrepreneurship” Challenge. From urban to rural areas, we should promote learning, action, and creation through competitions, mobilize the enthusiasm of all kinds of innovators and entrepreneurs, and enhance the demonstration and driving ability of e-commerce innovation and entrepreneurship.

2.1.4 E-Commerce Governance and Regulation

2.1.4.1 Collaborative E-Commerce Regulatory Initiatives in China

At the beginning of the twenty-first century, the rapid development of online information technology has given rise to large-scale e-commerce activities and new ways of market transactions in China. The emerging e-commerce market activities have posed new challenges to the old traditional market order, government regulatory approaches, and theories. The new government regulation needs to go beyond the original boundaries in order to prevent the failure of public values in the market and to effectively safeguard market efficiency. The new concept of collaborative governance of market regulation is based on the fusion of the two theories of synergy and governance. It emphasizes pluralistic, equal, collaborative, and orderly subjects of governance. Generally speaking, the main body of the collaborative governance concept is a common management mechanism formed by the government, the public, the media, and other parties. Through these subjects, a multi-faceted supervision of e-commerce activities is carried out.

The E-Commerce Law, which has been implemented since 1 January 2019, proposes to establish a collaborative management system throughout society that is in line with the characteristics of e-commerce market transactions. It further promotes the formation of a multi-party governance system for the e-commerce market with the participation of relevant government departments, industry self-regulatory organizations, e-commerce operators, consumers, and other subjects. This is the concrete practice of collaborative regulation theory in e-commerce regulation. To ensure the successful implementation of this practice requires the joint efforts of multiple entities.

First of all, the core value of e-regulation is the consensus to be reached by all participating subjects, that is, the core value identity, and let these core values become the common goal and behavioral norms of all participating subjects.

Secondly, each participating body should adhere to the direction of pluralistic governance and collaborative goals and clarify the responsibilities and division of labor between them. At present, China’s social governance emphasizes “leadership by the party committee, responsibility by the government, social coordination, and public participation”, with the government being the first responsible party. The strengthening of the “intra-institutional” regulatory mechanism is also an important guarantee for the implementation of regulatory objectives. As e-commerce regulation involves many departments, such as the Ministry of Commerce, the Cyberspace Administration of China, the State Internet Information Office, the State Administration for Market Regulation, the People’s Republic of China State Post Bureau, the Ministry of Agriculture and Rural Affairs, the General Administration of Customs, the Ministry of Public Security, the financial sector, and more than 20 other departments. A central coordinating authority needs to be established for each sector, and their respective regulatory rights and obligations should be clarified and implemented in strict accordance with the relevant regulatory laws and regulations. Strengthening the industry self-regulatory mechanism, industry organizations are a bridge between government departments and business organizations, allowing them to effectively play a guiding and supervisory role over enterprises which is another important safeguard for collaborative supervision. Strengthen the regulation of e-commerce platforms and the regulation of merchants by e-commerce platforms. On the one hand, it is important to prevent platforms from relying on traffic data and market dominance to the detriment of merchants and consumer rights. On the other hand, platform companies have the first-hand transaction data and merchant information of e-commerce. At the same time, these enterprises have advanced computer technology, so they have the advantage of regulating merchants and transactions, and it is more important to guide the platforms to play a positive regulatory role. Strengthen citizen supervision. Although citizens cannot exercise the right to regulate in accordance with the law, they have the right to know, express, and participate and can report and supervise unlawful acts in e-commerce. Through policy guidance, we will promote the collaborative efforts of all social parties to achieve universal regulation.

Finally, it relies on information technology to achieve “intelligent network supervision”. The “smart network supervision” improves the limitations of traditional supervision which is fragmented, focused, static, and manual. It is based on new concepts and technologies to achieve collaborative supervision, comprehensive supervision, dynamic supervision, and intelligent supervision. Government market supervision departments and multiple parties join forces to build a collaborative regulatory mechanism with information sharing at its core and build an off-site collaborative information technology network platform to achieve online collaborative investigation, case handling, referral, and flow integration for processing.

2.1.4.2 Overview of E-Commerce Laws and Regulations

E-commerce law is a legal code that covers all commercial activities conducted by means of data messages. In addition to this, there are many other laws and regulations relating to e-commerce in China.

• (1) E-commerce law

The E-Commerce Law is a comprehensive law in the field of e-commerce, covering all aspects of e-commerce, stipulating the conditions and mechanisms for e-commerce subjects to enter and exit from e-commerce, which has the content of subject law; regulating the legal relationship and transaction behavior between subjects in e-commerce, which has the content of conduct law; and also regulating the dispute resolution and supervision of e-commerce by the government and society. At the same time, it also has the content of promotion law to facilitate e-commerce transactions and promote the development of e-commerce.

• (2) Laws in other sectors

In order to avoid conflicts with other existing laws, the E-Commerce Law only regulates special matters in the field of e-commerce. For e-commerce subjects, because they are engaged in e-commerce activities, they have behaviors involving civil, commercial, and other areas, which also need to be regulated by civil, intellectual property law, commercial law, economic law, criminal law, and other laws and regulations. Thus, the legal system regulating e-commerce includes the E-Commerce Law of the People’s Republic of China, the Civil Code of the People’s Republic of China, the Law of the People’s Republic of China on the Protection of Consumers’ Rights and Interests, the Copyright Law of the People’s Republic of China, the Electronic Signature Law of the People’s Republic of China, and other laws and regulations.

• (3) Relationship between the E-Commerce Act and other sectoral laws

For the final implementation of the E-Commerce Law, the prerequisite is a good interface and coordination between it and the relevant laws and regulations. In accordance with the priority of law at the higher level over that at the lower level, if the provisions of the E-Commerce Law overlap with other laws of a different rank on a particular element, the higher level law is used. In accordance with the special law should be adopted before the common law and new law should be adopted before old law, if the E-Commerce Law and other relevant sectoral laws both provide for a particular element of e-commerce and the two sectoral laws are of the same rank, a determination will need to be made in accordance with the two principles mentioned above. According to the principle of the prevalence of regulations over non-regulations, if the E-Commerce Law does not regulate the content of a particular e-commerce involved, but other relevant laws do, then the content of the specific sectoral law that does regulate should be applied for adjustment.

2.1.4.3 Anti-Monopoly Policy

Chinese Anti-monopoly Law stipulates that monopolistic conduct includes monopolistic agreements among undertakings, abuse of dominant market positions by undertakings, and concentration of undertakings that lead or may lead to elimination or restriction of competition. In recent years, countries around the world have legislated in response to anti-monopoly issues in the digital economy. In general, the leading companies in the digital economy are larger, stronger, and bring more negative externalities to the market in the competition between companies. The Internet platform economy has entered a phase of rapid development in China, and as a result, many industries have given rise to large-volume Internet platform companies, including some e-commerce platforms, which are also among these digital giants.

In order to gain more market share and thus maximize profits, platform managers are innovating their business models while competition is becoming increasingly fierce. Phenomena such as “pick one of two”, “big data discriminatory pricing”, and “platform algorithm collusion” have gradually emerged in platform competition. The most typical of these is the “pick one of two” trading practice imposed by platforms on their internal operators. The term “pick one of two” is an objective expression of the fixed and exclusive trading relationship created by an Internet platform that requires the business managers within the platform not to choose the object of the transaction at their own will. The involvement of technology makes such restricted transactions even more complex, hidden, and difficult to prove. For operators who do not comply with the “pick one of two” rule, e-commerce platforms often take a variety of technical disciplinary measures, such as limiting the flow of e-commerce platforms, reducing the search weight in search engines, blocking shops on the platform, taking products offline or closing the purchase portal, etc., so that internal operators can quickly cut off the flow through these means. Restricted trading practices are not conducive to the healthy development of China’s e-commerce industry and have repeatedly caused controversy and great concern.

In August 2019, the General Office of the State Council issued the Guidance Opinions of the General Office of the State Council on Promoting the Standardized and Healthy Development of the Platform Economy clearly stating that the “pick one of two” behavior required by Internet e-commerce platforms should be severely cracked down on to ensure fair participation of market players in the competition. In December 2020, in accordance with the Anti-monopoly Law, China’s State Administration of Market Supervision conducted an investigation against Alibaba Group and issued an administrative penalty decision against it in April 2021. The investigation revealed that Alibaba Group’s failure to comply with the “pick one of two” requirement and its reliance on the company’s market position to prohibit merchants on its platform from accessing other e-commerce platforms as a means of enhancing its market competitiveness was a serious breach of market law. In February 2021, the Anti-Monopoly Committee of the State Council formulated and issued the Anti-Monopoly Guideline of the Anti-Monopoly Committee of the State Council on the Anti-Monopoly in the Platform Economy. The guide further clarifies the basic principles of the state’s anti-monopoly in the platform economy and aims to guide the high-quality and orderly development of the platform economy through sound regulatory rules.

On the legal front, the Anti-Monopoly Law of the People’s Republic of China is a legal regulation enacted by the State in the prevention and suppression of monopolistic practices. The law aims to safeguard equal competition in the domestic market and the legitimate rights and interests of all consumers in society, ultimately achieving the goal of improving the efficiency of economic operations and promoting healthy socio-economic development. E-commerce platform operators are a key focus of the E-commerce Law of the People’s Republic of China. Article 22 of the Decree clearly states that any platform operator cannot use its dominant position in the market to impede the normal market operations of other platform operators in the market through various means. The Law of the People’s Republic of China against Unfair Competition has been relied upon for a number of purposes due to its content features, which do not require a finding of market dominance in relation to any unfair competition. Article 12 of the Act states that the impact of technological means on the market environment cannot be underestimated and needs to be considered in conjunction with other multiple factors due to the difficulty of identification.

2.1.4.4 Intellectual Property Policy

The existence of the Internet has made it easier and faster to circulate intellectual property rights, but due to its virtual nature, there are numerous cases of Internet infringement. In terms of copyright infringement, it is easy for Internet users to obtain information about the rights holder’s works, exploit it in various ways, and disseminate it at speed, infringing on the rights of the rights holder, including the right to disseminate information over the Internet. As patents should be granted on a balance of novelty, utility, and inventiveness, the technical requirements are higher, making infringement more difficult to identify.⁶ In particular, the element of inventiveness, for which there is no fixed measure, has led to a large number of infringing goods being bought and sold in large quantities within the e-commerce industry. Infringement, particularly in relation to patents, is mostly difficult to justify externally. At the same time, trademark infringement in the industry is very serious. Well-known trademarks have a significant effect on the sales of goods, while the territorial nature of trademark rights makes the same trademark independent of different countries. With the addition of virtual trading on the Internet, trademark counterfeiting and other infringements are rife in e-commerce trade.

The E-Commerce Law contains explicit references to the legal regime for the protection of intellectual property rights on China’s e-commerce platforms. The Act sets out the obligations and duties of platform operators and operators within the platform, the ways for IPR rights holders to defend their rights in the event of infringement, what legal responsibilities infringers should bear after the infringement, etc. Articles 42 and 45 clarify the joint and several liabilities that platform operators should assume after passively dealing with IPR infringements. This provision allows platforms to no longer dare to sit back and watch and to take the initiative to assume the responsibility and the role that platforms should play and to play a central role among all parties involved in the protection of IPR in e-commerce, giving full play to their technical and governance advantages in online transactions. In addition to the E-Commerce Law, a number of laws, including the Tort Liability Law of the People’s Republic of China and the Regulation on Protection of the Right to Network Dissemination of Information, also provide for the protection of intellectual property rights.

Strengthening the protection of property rights in e-commerce requires the joint participation of the government, platforms, society, enterprises, and individuals to improve the overall level of IPR protection in China in terms of the rule of law, platform governance, technology governance, and the cultivation of independent industries.

In terms of the rule of law, China has continued to improve its legal and regulatory system and to build up the protection of intellectual property rights in e-commerce. The Civil Code of the People’s Republic of China was voted on and passed, establishing a benchmark for China to strengthen intellectual property protection; the fourth amendment to the Patent Law has been completed; and the new Trademark Law and supporting policies have been introduced. The construction and improvement of the legal system have strengthened the foundation for the protection of intellectual property rights in e-commerce.

In terms of platform governance, the platform rule system needs to be improved. This includes audit system, credit evaluation system, penalty system for violations, data monitoring system, etc. Multiple systems are combined to achieve effective regulation and management of the platform and to guarantee the orderly and efficient operation of the platform economy.

In terms of technology governance, as we enter the digital economy, China is gradually moving toward the center of the world stage in terms of artificial intelligence, cloud computing, and other Internet technologies. At this time, it is even more important to make full use of technology to create an intelligent IPR protection system, improve the level of prevention and control, and use high technology to build an IPR protection system.

With regard to the cultivation of autonomous industries, China’s high-tech enterprises need to invest more in the development of their own core technologies and strive for their own independent intellectual property rights. At the same time, they need to combine digital information technology for industrial optimization and upgrading, so as to achieve a sustainable upgrade of China’s multi-disciplinary and multi-industry industries and improve Made in China in all aspects.

2.2 Markets

In the process of structural change, the “Promising Government” needs to continuously improve and upgrade the infrastructure to solve the external problems that arise. The “Efficient Markets” is also shaping the comparative and competitive advantage of enterprises, through the decisive role of the market in the allocation of resources and the formation of a price system that reflects the scarcity of factors. Based on their comparative advantage, enterprises choose to invest in industries and technologies that are in line with their development. In the process of developing a competitive advantage, enterprises need to give full play to their position as market players and develop e-commerce under the combined effect of a series of market theories. This section focuses on a series of market theories in the context of “Efficient Markets” from three perspectives: demand-side theory, supply-side theory, and platform theory.

2.2.1 Demand-Side Theory

2.2.1.1 The Long Tail

Chris Anderson introduced the concept of the “long tail” in 2004,⁷ using the term to analyze the business models of several websites. The results showed that with a certain level of liquidity and warehousing, the total market share of non-hot items (products with low sales) can be comparable to that of a few hot items (products with high sales per item). The theory is that when there are enough channels of storage and circulation, even a product with a small market can generate just as much revenue, and that when a combination of small markets can create a market energy that rivals that of large markets. Another great number $Q$ = An extremely large number (products in the long tail $P_{i}$)* A relatively small number (sales of each long-tail product $Q_{i}$), i.e. total sales $Q = P_{1} Q_{1} + P_{2} Q_{2} + P_{3} Q_{3} + \ldots \ldots = \sum\nolimits_{i = 1}^{n} {P_{i} Q_{i} }$. This provides a long-overdue business opportunity in the Internet age.

With the advancement of computer network technology, the Internet has truly transcended time and space, making people’s needs more and more diverse, and the Long Tail was born. However, in the market, people tend to notice the head part of the long-tail curve and ignore the gentle tail part behind it (As Fig. 2.2 shows). This means that the market demand in the tail section is not being met and there is still a basis for capturing the benefits. In The Long Tail, the market in the head segment is generally characterized by higher prices, better quality, and easy access to groups with higher levels of consumption. Conversely, markets in the tail segment are characterized by lower prices, less quality, but more quality, etc.

Fig. 2.2

The Long Tail

In the context of China’s rapid economic development, consumer upgrading has become the core keyword of the current consumer market, especially in the vast rural market, where inexpensive goods also have a very broad market demand (MD). On the one hand, digital e-commerce (EC) through community marketing (SS) and other ways can quickly enhance the breadth of users (UN), to solve the traditional e-commerce market of the long tail of the problem, can let the majority of user groups to obtain e-commerce dividends, can maximize the activation of the rural economy, and improve the ecology of rural e-commerce, that is ${\text{UN}} = f({\text{EC}},{\text{SS}})$. On the other hand, in order to meet the consumption experience (CE) of the long-tail user group, digital e-commerce (EC) offers more diversified and specialized services (PS), namely $\text{CE} = f({\text{EC}},{\text{PS}})$, the total market demand is obtained as ${\text{MD}} = f({\text{UN}},{\text{CE}})$. The development of digital e-commerce in rural areas in recent years has greatly compensated for the lack of e-commerce in China in this area. In order to solve the Long-Tail problem, companies need to choose personalized products as the “Long Tail” and dig deeper into the individual and diverse needs of users in order to gain market favor. The “Long Tail” of products for e-commerce companies is undoubtedly digital products with diminishing marginal costs and significant marginal revenue. For example, well-known Internet company B has targeted the vacancy in the tail market by focusing on the rural market, opening up the competitive landscape of China’s e-commerce market. At the same time, the cost of distributing goods in China is gradually decreasing due to the application of technologies such as blockchain in this area, satisfying the needs of long-tail users and providing momentum for the development of the tail market.

2.2.1.2 Theory of Consumer Behavior

Consumer behavior forms an important part of the e-commerce landscape. The definition of consumer behavior is that the individual or group moves from choice to purchase, from purchase to use, and even includes recommending products, evaluating them, and sharing experiences of using them.

There are many factors that influence consumer behavior, including education, salary, age, etc. Research on factors influencing consumer behavior can be broadly divided into two categories, one based on classical models and theories such as the stimulus-organism-response model (S-O-R), theory of reasoned action (TRA), and technology acceptance model (TAM). The second is to adapt classical behavioral models or to construct them themselves. In 1925, Strong introduced the AIDA model to the evaluation of advertising effectiveness. The AIDA model provides a detailed explanation of how consumers complete the complete purchase process, which is divided into four stages: awareness, interest, expectation, and action, depending on the level of consumer response in the process. In 1898, Lewis proposed the traditional model of consumer behavior theory AIDMA, the five stages from attention, interest, desire, memory to action. This was followed by the explosion of the Internet and mobile applications, which led to a paradigm shift in consumer behavior and the emergence of the AISAS model of consumer behavior theory. The AISAS model is an improvement on the original AIDMA model, which was discussed in the context of the Internet and is a new marketing model for the study of modern Internet consumer behavior. Its basic idea is the process of “Attention → Interest → Search → Action → Share (Attention ${S}^{(1)}$) → Interest ${S}^{\left(2\right)}$) → Search ${S}^{\left(3\right)}$) → Action ${S}^{\left(4\right)}$) → Share ${S}^{\left(5\right)}$)” (Fig. 2.3).

Fig. 2.3

The five stages of the AISAS model of consumer behavior theory

In the AISAS model, the first stage is concerned with ${S}^{\left(1\right)}$, which refers to the delivery of product information and promotions to consumers through various media by the platform or merchant, and the generation of transaction demand (d) by consumers for a change. In this process, e-commerce companies promote their goods to consumers through promotional exhibitions, increased media exposure channels, increased advertising intensity and product diversity, and consumers obtain the product information they need to meet their needs in various ways ${I}^{{S}^{\left(1\right)}}$, i.e. ${I}^{{S}^{\left(1\right)}}={S}^{\left(1\right)}(d)$. The second stage is interest ${S}^{\left(2\right)}$, which is concomitant with attention and refers to the ability of the information about the goods to attract the active attention of the consumer, to evoke a latent need within the consumer, and to satisfy it, thus generating the willingness and desire to consume ${D}^{{S}^{\left(2\right)}}$, i.e. ${D}^{{S}^{\left(2\right)}}={S}^{\left(2\right)}({I}^{{S}^{\left(1\right)}})$. The third stage is search ${S}^{\left(3\right)}$, which refers to consumers obtaining more refined information about the product from a variety of sources, further increasing their motivation to buy and forming a purchase intention ${D}^{{S}^{\left(3\right)}}$. At this stage, the satisfaction of consumers’ psychological expectations is not only related to the intrinsic characteristics of the goods, i.e. the matching of their value with consumers’ expectations ${{M}_{1}}^{{S}^{\left(3\right)}}$, but also to the external factors of the goods ${{M}_{2}}^{{S}^{\left(3\right)}}$, such as the convenience of facilities, payment methods, the distance required for consumption, and the consumer protection system. ${D}^{{S}^{\left(3\right)}}={S}^{\left(3\right)}\left({D}^{{S}^{\left(2\right)}}\right)={S}^{\left(3\right)}\left({{M}_{1}}^{{S}^{\left(3\right)}},{{M}_{2}}^{{S}^{\left(3\right)}}\right)$; The fourth stage is action ${S}^{\left(4\right)}$, i.e. consumer action ${A}^{{S}^{\left(4\right)}}$ that arises when the consumer is informed about the product, has the intention or impulse to buy, and the product and service meet the demand, and is an action for a specific product, including payment for the product, logistics and delivery, and after-sales service. Consumer actions are influenced by purchase intentions ${D}^{{S}^{\left(3\right)}}$, but also by consumption habits ${C}^{{S}^{\left(4\right)}}$, such as whether consumers choose to spend in physical shops or on the Internet, or whether they combine online and offline. Payments are made in cash or using a third-party payment platform, or by bank transfer. ${A}^{{S}^{\left(4\right)}}={S}^{\left(4\right)}\left({D}^{{S}^{\left(3\right)}},{C}^{{S}^{\left(4\right)}}\right)$; The fifth stage is sharing ${S}^{\left(5\right)}$, which refers to the self-generation of subjective and objective content information ${E}^{{S}^{\left(5\right)}}$ by consumers with the help of reviews on social areas of e-commerce platforms or third-party social media to attract the attention of future new users, i.e. ${E}^{{S}^{\left(5\right)}}={S}^{\left(5\right)}({A}^{{S}^{\left(4\right)}})$. With the growing diversity of new media, the relationship between users within the same community has been brought closer. In addition, consumers can not only rate their purchases, but also share and spread their reviews, thus influencing other potential consumers. Noting this post-purchase sharing as ${E}_{s}^{{S}^{\left(5\right)}}$ and the range of sharing as $S\left({E}_{s}^{{S}^{\left(5\right)}}\right)$ then we have $S\left({E}_{s}^{{S}^{\left(5\right)}}\right)={\left[{S}_{ij}\left({E}_{s}^{{S}^{\left(5\right)}}\right)\right]}_{\infty }=\left[\begin{array}{cc}{S}_{11}\left({E}_{s}^{{S}^{\left(5\right)}}\right)& \begin{array}{cc}{S}_{12}\left({E}_{s}^{{S}^{\left(5\right)}}\right)& \cdots \end{array}\\ \begin{array}{c}{S}_{21}\left({E}_{s}^{{S}^{\left(5\right)}}\right)\\ \vdots \end{array}& \begin{array}{cc}{S}_{22}\left({E}_{s}^{{S}^{\left(5\right)}}\right)& \cdots \\ \vdots & \ddots \end{array}\end{array}\right]$. And ${S}_{ij}\left({E}_{s}^{{S}^{\left(5\right)}}\right)$ refers to the impact of the ith consumer’s evaluation sharing on the jth potential consumer.

In summary, the overall process of consumer behavior can be described as follows:

$$ E^{{S^{\left( 5 \right)} }} = S^{\left( 5 \right)} \left( {S^{\left( 4 \right)} (S^{\left( 3 \right)} (S^{\left( 2 \right)} (d)))} \right) $$

(2.1)

To effectively consolidate their core position in the market, e-commerce companies should listen carefully to the voices of consumers and users and recognize that improvements in products and services are not unfounded. In addition to collecting users’ opinions and suggestions, we also profile them based on their basic information and record them in our records. This enables companies to plan their products and improve their after-sales service, ultimately increasing consumer stickiness.

2.2.1.3 Maslow’s Hierarchy of Needs

In 1943, Maslow divided the hierarchy of needs from low to high into five types: physiological needs ${H}_{1}^{N}$, security needs ${H}_{2}^{N}$, social needs ${H}_{3}^{N}$, respect needs ${H}_{4}^{N},$ and self-actualization needs ${H}_{5}^{N}$. When lower level needs are satisfied, people’s higher level needs will crave to be fulfilled. The first three needs are the basic stage needs, which are indispensable for human survival, while respect and self-actualization belong to the higher level needs (Fig. 2.4).

Fig. 2.4

Hierarchy of needs theory

In the e-commerce sector, consumers at different levels of need will react differently and influence their decisions during the consumption process.

• (1) Physiological needs ${H}_{1}^{N}$—Daily functions of e-commerce products

In the real world, human beings have the most basic physiological needs, which are the type of needs that people have to satisfy in order to survive. For consumers in the e-commerce sector, the most basic need is to realize the functions of e-commerce products and to meet the basic daily use needs of users, including clothing, food, shelter, and transportation.

• (2) Safety needs ${H}_{2}^{N}$—Product quality assurance for e-commerce

Security needs include the need for personal safety, physical health, and stability in life. It is the second need that needs to be satisfied after the physiological needs have been met. For consumers in the e-commerce sector, this level of demand revolves around product quality, such as product traceability, which is increasingly important to consumers. Product traceability includes the raw material, processing material, environment of origin, and producer of the product.

• (3) Social needs ${H}_{3}^{N}$—Exchange e-commerce products

Social needs include the need for belonging and love, which is the turning point in the hierarchy of needs and which drives people to interact with others. When this demand is extended to the e-commerce sector, consumers’ social needs are reflected in communicating about products. Specifically, it is in the process of communicating with others to gain further insight into the e-commerce product and lead to the consumer’s next decision. For example, the comment sections and live streaming rooms for products on e-commerce platforms and instant dialogues for merchants all reflect the social needs of consumers for e-commerce products.

• (4) Esteem needs ${H}_{4}^{N}$—e-commerce product personality

Esteem needs include recognition, approval, and respect for oneself and for others. For consumers in the e-commerce sector, esteem needs are reflected in their need for the personalization of e-commerce products. This includes personalization of e-commerce product design, personalization of e-commerce products, friendly pop-up boxes on e-commerce platforms, the possibility of receiving approval from others after reviewing products, and selected reviews on e-commerce platforms. All of the above can lead to a sense of satisfaction for consumers. When this satisfaction is transformed into a sense of achievement in use under certain circumstances.

• (5) Self-actualization needs ${H}_{5}^{N}$—sublimated consumer behavior

Once the need for respect has been satisfied, the highest level of need emerges, namely the need for self-actualization. The need for self-fulfillment is a psychological satisfaction and a sense of value. For example, the “anti-poverty projects” and “the Belt and Road” e-commerce promotion in the live broadcast. Consumers feel that they are helping others while buying products. This psychological formation also adds value to the act of buying a product.

Only after the lower level needs have been satisfied does the consumer show a desire for the higher level needs, i.e. when the consumer need $\supset {H}_{k}^{N}$, then there is that $D={H}_{1}^{N}\cup \dots \cup {H}_{k}^{N}$, $1\le k\le 5$. When a consumer is unable to satisfy a higher level need, he or she relies on the pseudo-pleasure that comes from the next highest level need. That is, the consumer must try to satisfy the highest need within his or her ability, when the utility ${U}^{N}$ from that level of need is greatest, and there is that ${U}_{1}^{N}<{U}_{2}^{N}<{U}_{3}^{N}<{U}_{4}^{N}<{U}_{5}^{N}$.

2.2.2 Supply-Side Theory

2.2.2.1 Theory of Price Elasticity of Demand

In the face of increasing competition in the market, pricing strategies will greatly affect the sales of a company’s products. In marketing, we often come across a phenomenon. Businesses sometimes adopt promotional strategies, that is, they attract the attention of consumers by lowering the price of their products in order to increase sales. However, some products do not have significant appeal when prices are reduced and overall sales revenue is reduced. The reason for these two very different results lies in the different price elasticity of demand for the products. Therefore, with the rapid development of the market economy, enterprises correctly apply the theory of price elasticity of demand in the right areas to explore and master the laws of market development in this way can they ultimately win the market.

The elasticity of demand generally refers to the price elasticity of demand ${\text{Ed}}$. It refers to the extent to which a change in price $\frac{\Delta P}{P}$ causes a change in the quantity demanded $\frac{\Delta Q}{Q}$. The formula for this is

$$ Ed = \frac{\Delta Q/Q}{{\Delta P/P}} = \frac{\Delta Q}{{\Delta P}} \times \frac{P}{Q} $$

(2.2)

The price elasticity of demand for a product in e-commerce refers to the fluctuation of the demand for a product in an e-commerce market in relation to changes in the price of the product. It is important to note that e-commerce markets are different from natural markets in the traditional sense. In addition to the general market, e-commerce markets also include e-commerce platforms. The price of products on the platform is influenced by both supply and demand as well as the behavior of the platform. Therefore, the price of a product on an e-commerce platform also contains multiple meanings. The price in a broad sense is the price after including activities such as platform bonuses, discounts, and full discounts. A weighted average based on the price elasticity of demand for a product captures the size of supply and demand in the e-commerce market. The weighted price elasticity of demand is large. It indicates that fluctuations in product prices significantly affect the size of demand in the market and that buyers are sensitive to price fluctuations. The low elasticity indicates that the market is in a relatively stable state. Consumer behavior is not unduly influenced by price changes. In general, the elasticity of a product $Ed$ is determined by the time of adjustment by the consumer $Ed_{1}$, the substitutability of the product $Ed_{2}$, the use of the product $Ed_{3}$, the non-essential nature of the product $Ed_{4}$, the proportion of the product in the household expenditure $Ed_{5}$, etc., i.e. $Ed = \left\{ {Ed_{1} ,Ed_{2} ,Ed_{3} ,Ed_{4} ,Ed_{5} \ldots \ldots } \right\}$. The longer the consumer adjustment time $Ed_{1}$ examined, the more substitutable the product $Ed_{2}$, the more uses for the product $Ed_{3}$, the greater the degree to which the product is not essential to life $Ed_{4}$, and the greater the proportion of the product in household expenditure $Ed_{5}$, the greater the price elasticity of consumer demand $Ed$ (Figs. 2.5 and 2.6).

Fig. 2.5

Elastic price demand

Fig. 2.6

Inelasticity of price demand

We define the total return to the producer by the following equation TR:

$$ {\text{TR}} = P \times Q $$

(2.3)

where P is the price of the product and Q is the quantity sold.

The elasticity of demand ($Ed$ > 1) means that when the price of a product falls, the quantity demanded rises more than the price falls, so that total revenue increases. This is why the phenomenon of “selling more at lower prices” occurs. The inelasticity of demand ($Ed$ < 1) means that when the price of a product falls, the quantity demanded increases less than the price falls, so the total revenue from sales falls.

It is important to note that for different consumers, the elasticity of demand for the same type of product may be different, sometimes significantly different. This means that manufacturers can adopt different pricing strategies for different customer segments.

2.2.2.2 Innovation Theory

The theory of innovation first appeared in the writings of Joseph A·Schumpeter. This theory argues that innovation is the essence of economic development and that companies will spontaneously undertake various innovative activities and efforts in order to gain a stronger competitive advantage and reap superior profits. In his book, Schumpeter refers to innovation as the recombination of factors of production and conditions of production. New combinations are introduced into the production system to create new products, new markets, new organizations, new methods of production, and new sources of supply, which lead to more excess profits. Following the scholar’s theory of innovation, many scholars have attempted to build on it for further validation and innovation. The main focus has been on both technological and institutional aspects. The two theories of these two areas of debate focus on the determinants of economic growth. The traditional innovation models include two types, namely the incremental innovation model and the breakthrough innovation model. Advances in science and technology and changes in the social environment have brought innovation and its connotations to the forefront, and innovation has taken on a richer and more diverse meaning. It is no longer just the individual behavior of a company in a certain production or business process. It represents the group behavior resulting from the interaction in any space in the network of interaction between innovation agents. Scholars such as Liu Zhiying and Zhu Qingyu have reviewed the development of classical Western innovation theory and pointed out that innovation at the enterprise level $Inv^{(1)}$ includes three themes: innovation management $Inv_{1}^{(1)}$, innovation model $Inv_{2}^{(1)}$, and innovation subject $Inv_{3}^{(1)}$, namely $Inv_{{}}^{(1)} = \left\{ {Inv_{1}^{(1)} ,Inv_{2}^{(1)} ,Inv_{3}^{(1)} } \right\}$. At the same time, they suggest that a theory of innovation constructed based on the Chinese scenario can be considered in several ways. For example, the dynamic capability of technological innovation and technology strategy, R&D management innovation and open innovation, technology path selection and sustainable innovation, and innovation in the digital transformation of enterprises (Fig. 2.7).

Fig. 2.7

Three themes of innovation theory at the firm level

Professor Edison Tse from Stanford University presented the meaning of “source innovation”, which he divided into scientific and commercial innovation, and elaborated on it.

Scientific innovation, which refers to the discovery of new laws of nature, includes innovations in scientific theories, products, technologies, etc. For this reason, it is referred to as “original innovation” and is often referred to as “independent innovation” in China. Business innovation consists of two kinds, which are the act of creating new value with the help of science and technology. The first type of innovation is “flow innovation”, which is a model of innovation that improves on existing values without making other original changes, such as optimizing existing products, reducing production and operating costs, and improving management. The second type of innovation is “source innovation”, which is a completely new innovation that starts from scratch and builds something from nothing. It represents the development of new ideas and the creation of new values. This model of innovation enables disruptive innovation in demand by combining existing resources.

Source innovation theory is applicable to innovation in new industries with fast-changing market demands, high technological requirements, and strong risk aggregation. Thus, new industries that are integrated with information networks, such as e-commerce, can be interpreted as huge ecosystems $Inv_{{}}^{(2)}$ built according to the theory of “source innovation”. The key elements are five: the value of new ideas $Inv_{1}^{(2)}$, two-sided markets $Inv_{2}^{(2)}$, positive network effects $Inv_{3}^{(2)}$, interactive innovation between “flow innovation” and “source innovation”$Inv_{4}^{(2)}$, and the ecosystem $Inv_{5}^{(2)}$, which is expressed by the formula (Fig. 2.8):

$$ Inv_{{}}^{(2)} = \left\{ {Inv_{1}^{(2)} ,Inv_{2}^{(2)} ,Inv_{3}^{(2)} ,Inv_{4}^{(2)} ,Inv_{5}^{(2)} } \right\} $$

(2.4)

Fig. 2.8

The “Source Innovation” ecosystem

2.2.2.3 Theories of Comparative Advantage and Competitive Advantage

Using comparative advantage to analyze national development strategies, the results show that the industrial and technological structure of economies in the country is endogenously shaped by the factor endowment structure. The factor endowment structure is the country’s total budget for production and services in the primary, secondary, and tertiary sectors. The factor endowment structure $E_{n}^{(e)}$ is a specific factor endowment consisting of natural capital $F_{1}^{(e)}$, human capital, physical and financial capital, and infrastructure, i.e. $F_{{}}^{(e)} = \left\{ {F_{1}^{(e)} ,F_{2}^{(e)} ,F_{3}^{(e)} ,F_{4}^{(e)} } \right\}$.To control costs and improve overall competitiveness, it is necessary to upgrade the structure of factor endowments as soon as possible. This can only be achieved by following comparative advantages and using more of the country’s relatively abundant factors of production. The same applies to the corporate level.

Generally speaking in a free, open, and competitive market economy, the more consistent the technological choices and comparative advantages are, the greater viability of the firm. The more inconsistent they are, the weaker viability they have. According to Yifu Lin, in a free, open, and competitive market, viability $E_{d}^{(e)}$ is the ability of a company to earn a normal profit. Whether or not comparative advantage is followed is important for a company to be able to maintain its viability. Firms that do not follow their comparative advantage often face high costs and inefficient production. This often prevents the firm from making a normal profit and thus losing its viability. There are also some companies that do not have viability because the area of origin does not have a comparative advantage.

Thus, it can be summarized that a firm’s resource endowment $E_{n}^{(e)}$ determines its comparative advantage $C_{a}^{(e)}$, which in turn determines its viability $E_{d}^{(e)}$, i.e. $E_{d}^{(e)} = C_{a}^{(e)} (E_{n}^{(e)} (F_{{}}^{(e)} ))$. At both the national social and enterprise levels, each subject follows comparative advantage. Firms that choose the technology with the lowest factor cost per unit of output to produce in this environment are more self-generating, more profitable, and less dependent on external finance. At this point, companies are able to accumulate capital, upgrade their factor endowments, and obtain maximum returns at the fastest rate possible, thus entering a virtuous cycle.

The prerequisite for enterprises and countries to be quite competitive is to follow their comparative advantage. So enterprises need to use their comparative advantage, as determined by the structure of their factor endowments, to choose the right industries and technologies and to accumulate better factors of production. Competitive advantage has a rich connotation and refers to the fact that a company has more advantages in various aspects compared to its competitors, and these advantages can help the company create more value. In terms of competitive advantage, this is outlined in detail by the resource-competence theory ${\text{RA}}^{(e)}$. Based on the resource-based view of the enterprise, American scholar Wernerfel proposed the Resource-Based View. The main point of the theory is that companies are a collection of resources and should focus on how to expand their markets, network important resources, and develop sustainability factors (Fig. 2.9).

Fig. 2.9

Competitive advantage for e-commerce companies

The main elements of the resource-based view $R_{s}^{(e)}$ include three points. The first is the resources of the firm’s competitive advantage $R_{s1}^{(e)}$, i.e. the special heterogeneous resources. The second is the sustainability of a firm’s competitive advantage, the key element of which is the non-replicability of resources $R_{s2}^{(e)}$. Thirdly, it is the acquisition and management of special resources $R_{s3}^{(e)}$. Only good management can maximize the impact of special resources. Thus, the resource-based view can be expressed in the formula:

$$ R_{s}^{(e)} = \left\{ {R_{s1}^{(e)} ,R_{s2}^{(e)} ,R_{s3}^{(e)} } \right\} $$

(2.5)

Resource-capacity theory ${\text{RA}}^{(e)}$ is a concept that adds capacity $A_{b}^{(e)}$ to the resource-based view $R_{s}^{(e)}$. The concept of competence takes the form of flows in the process of learning resources and managing them in the company. The resource-capacity theory suggests that the acquisition of economic rents can be analyzed in two ways within the firm. The first is that the firm has a network of many effective resources from various areas. Secondly, on top of having these effective resources, the company must have the strength to make the most of them, i.e. the company needs to have the appropriate expertise and experience, i.e. core competencies. The criteria used by companies to identify core competencies fall into three broad categories. Firstly, core competencies create the possibility of many new product markets for the company $A_{b1}^{(e)}$. Secondly, the core competency provides a more comprehensive use value to the end consumer and the customer’s trust and confidence in the company’s products increase $A_{b2}^{(e)}$. Thirdly, core competencies make the company’s goods or business less likely to be copied $A_{b3}^{(e)}$. Thus, the resource-based view $A_{b}^{(e)}$ can be expressed in the formula:

$$ A_{b}^{(e)} = \left\{ {A_{b1}^{(e)} ,A_{b2}^{(e)} ,A_{b3}^{(e)} } \right\} $$

(2.6)

Further, the resource-capacity theory $RA_{{}}^{(e)}$ can be expressed in the formula:

$$ {\text{RA}}^{(e)} = (R_{s}^{(e)} ,A_{b}^{(e)} ) $$

(2.7)

The paths that companies should take when integrating e-commerce elements should not be the same based on the resources they have at their disposal and their own capabilities. For example, physical e-commerce enterprises should enter into cooperation with other enterprises, using the advantages of cooperative enterprises to optimize their own e-commerce platforms, improve their own service levels and their ability to process and share information, so as to achieve a win–win situation; basic business e-commerce enterprises should open up the scope of their business through cooperation and seek to transform and upgrade their businesses; resource-based enterprises should make good use of the resources at hand and make efforts to build their own e-commerce platform through these resources, thus increasing their competitiveness.

The process of building a competitive advantage for e-commerce companies is the result of collaboration, integration, and application of resources by multiple stakeholders. Therefore, in order to build and maintain a sustainable competitive advantage, e-commerce companies should actively create a digital enterprise ecosystem that attracts other companies to create value together. It is also important to note the significant impact of social issues on corporate behavior and values, with a strong interrelationship between the two. E-commerce companies must therefore make good use of the resources at hand to create economic and social value. Companies need to follow the principles of shared value creation, while incorporating ethical norms of technology into the realm of core competencies. Corporate ethics in science and technology can help companies improve their own core competencies and can also help them create social value. Creating social value is an important source of competitive advantage for companies to maintain.

2.2.2.4 Low-Carbon Economy Theory

In the twenty-first century, the world economy is developing rapidly and global economic integration is accelerating. The traditional development model, with its high carbon content, energy consumption, and pollution, runs counter to today’s concept of green and sustainable development. How environmental issues can be compatible and synergistic with development is an important issue. The concept of a ‘low-carbon economy’ was first introduced by Kinzig and Kammen. The White Paper on Energy defines a low-carbon economy as a new model of economic development marked by the application of low-carbon technologies and the development of new energy sources. This model reduces municipal waste emissions and energy while providing a more low-carbon production environment and sustainable development opportunities. Rubinstein goes further to explain the low-carbon economy: it is a new model of economic and social development that exists within the framework of socialist market mechanisms, in an environment of institutional innovation and rational policy-making, with “low pollution $x_{p1}^{{}}$, low consumption $x_{p2}^{{}}$, and low emissions $x_{p3}^{{}}$” production and consumption $X_{p}^{{}}$, i.e. $X_{p}^{{}} = \left\{ {x_{p1}^{{}} ,x_{p2}^{{}} ,x_{p3}^{{}} } \right\}$, to achieve “high performance $y_{d1}^{{}}$, high efficiency $y_{d2}^{{}}$, and high effectiveness $y_{d3}^{{}}$” of human society $Y_{d}^{{}}$, i.e. $Y_{d}^{{}} = \left\{ {y_{d1}^{{}} ,y_{d2}^{{}} ,y_{d3}^{{}} } \right\}$. By putting the whole process into the equation, it can be described as

$$ Y_{d}^{{}} = f(X_{p}^{{}} ) $$

(2.8)

At present, there are two main interpretations of what a low-carbon economy means by scholars. One definition revolves around the goal of a low-carbon economy. This view is that a low-carbon economy is not related to economic growth, and that the purpose of this economic model is to promote long-term sustainable human development through joint efforts, which should not lead to a reduction in human living standards. The other is that the key to a low-carbon economy is low-carbon technology. The division of the low-carbon economy sector should be based on the classification of low-carbon technologies. To drive the development of a low-carbon economy, it is necessary to enhance the effective use of new energy sources and technological upgrading. Wang Mengxia also summarized the low-carbon pathway options for companies as follows (Fig. 2.10).

Fig. 2.10

Low-carbon path options for businesses

In terms of low-carbon products, China’s products have gone through a process of low carbonization from green products to energy-efficient products and finally upgraded to environmental labeling products. In the future, low-carbon products should first be selected from the most comprehensively developed environmental labeling products for gradual improvement. Green products are a reflection of the application of green technology. According to Liu Yue, a green product is a product that has chosen environmentally friendly materials, structures, and processes that produce no or less toxic side effects on the environment throughout the production and sales cycle, minimizing the impact on the environment and minimizing the consumption of production resources. Liu Qian and others point out that the development of energy-efficient products should meet the needs of energy, economy, and environment at the same time. The current evaluation criteria for energy-efficient products in China do not yet cover the entire production and sales process. Only products that are energy efficient throughout the entire process can be considered truly energy efficient. Low-carbon products are the endpoint of a low-carbon economy. The core element of promoting a low-carbon economy from the endpoint is the development of various relevant standards, such as energy-saving product standards, environmental labeling product standards, and low-carbon product standards. At the same time, energy-saving and low-carbon products need to be vigorously promoted, produced, and marketed to replace ordinary products. By increasing the proportion of energy-saving and low-carbon products in the total product mix, we promote the optimization of product and industrial structures and the development of a low-carbon economy and low-carbon cities.

For low-carbon industries, more emphasis is placed on targeting industrial structure and ratio, application of low-carbon technologies, support of advanced equipment, process optimization, etc. The development and application of various new technologies, techniques, and methods for energy conservation and emission reduction to reduce energy consumption and emissions, and to reduce costs, thus achieving low carbon. The central idea of a low-carbon economy is energy saving and emission reduction with the aim of sustainable and healthy development. Efforts are made in the areas of technology, systems, and raw material development to give maximum environmental support to reduce the pressure on energy. On this basis, we promote the joint development of social and economic synergy with ecological and environmental protection.

E-commerce businesses need to maintain their core competencies if they want to sustain healthy growth and gain more profits. In addition, it also requires proper planning of all the assets, resources, and overall structure of the enterprise. And among the development of e-commerce enterprises in line with the times, the low-carbon economy has formed a special kind of competitiveness, low-carbon competitiveness. This competitiveness includes resource competence, technical competence, management competence, and environmental competence.

A low-carbon economy is not only conducive to the core competitiveness of e-commerce enterprises in the new economic environment, but also meets the requirements of low carbon and environmental protection in sustainable development. On the one hand, in the theoretical environment of low-carbon economy, the core competitiveness of e-commerce enterprises is closely related to low-carbon capability, which can ensure the sustainable profitability of enterprises in the development process. At the same time, enterprises can obtain support in various areas by responding to the various policies under the government’s call. Comply with the international development trend, break the trade barriers, and meet the low-carbon requirements of enterprises. Further, expand the scope of cooperation and enhance the competitiveness of enterprises themselves at home and abroad. As a result, the brand reputation and influence of e-commerce companies will increase with low-carbon capacity. These two will greatly enhance the core competitiveness of the enterprise. On the other hand, some of the industries in the e-commerce business involve high energy-consuming links. For example, the logistics industry has a high energy consumption and harmful gas emissions in the transportation of products, which is not in line with the principles of a low-carbon economy. Therefore, it needs to be dealt with in a targeted manner using advanced science and technology. In the process of e-commerce development, enterprises need to adhere to the development of a low-carbon economy, put environmental awareness at the forefront, and respond to the requirements of ecological civilization construction and development. In this context, the low-carbon development of e-commerce will save significant resources. This is in line with the requirements of low-carbon environmental protection and sustainable development strategies and will contribute to the mitigation of global climate problems.

2.2.3 Platform Theory

2.2.3.1 Two-Sided Market Theory

A two-sided market, also known as a two-sided network, is a platform on which one or several users end up trading, and which keeps all parties on the platform through appropriate charges to each party. Since then, researchers have developed the “non-neutral price structure” theory of two-sided markets. Considered in terms of network externalities, a two-sided market is a market in which two heterogeneous segments of participants are connected and traded through a platform. The returns of one part of the market are highly correlated with the number of participants in the other part. In a nutshell, a two-sided market is a trading platform in the midst of an Internet environment that provides services to both parties. As an intermediary, the two are tightly linked through the platform by means of platform price adjustments and a system of platform participation for buyers and sellers, where the benefits of one party are tied to the quantity of the other.

There are three types of market players in the bilateral market, including platform operators $b_{i}^{(t)}$ and two types of platform users $c_{ij}^{(t)}$ (buyers and sellers of transactions, program developers, and users). In addition, bilateral users have an advantage over unilateral markets in terms of the type of interaction and the number of participants. Platform companies and bilateral platform users constitute a two-sided market, the structure of which is shown in the diagram below. It can be seen that the platform companies are at the focal point of the bilateral market and are the basis on which the bilateral market is maintained. Platform user group A and platform user group B drive the bilateral market in the marketplace. The central platform acts as an intermediary for communication between the bilateral markets. In the e-commerce domain $r_{ij}^{(t)} (I)$, the function has a value domain of {0,1}, where $I$ represents the full information set, which includes all information, such as the net assets, equity structure and net income of the platform, the assets of the platform users, and the level of knowledge about the platform. Therefore, with reference to the diagram below, the relationship between the platform company and user groups A and B can be exemplarily represented as $r_{i1}^{(t)} (I)$, $r_{i2}^{(t)} (I)$ (Fig. 2.11).

Fig. 2.11

Structure of the two-sided market

There are three types of two-sided markets, audience-creating, market-creating, and demand-coordinating. Audience-creating two-sided markets rely heavily on the number of users. Only when the number of platform users reaches a certain size can relevant companies be attracted to the platform. A market-creating two-sided market is one in which the two parties to a transaction are closely linked. As the number of users on one side increases, the utility of the platform and the other side increases, thus increasing the efficiency of transactions on the platform. In contrast, the harmonized demand-based two-sided market is primarily used to meet the differentiated needs of bilateral users.

Two-sided markets have properties $B_{{}}^{(m)}$ including network externalities $B_{1}^{(m)}$, asymmetric pricing $B_{2}^{(m)}$, demand dependence $B_{3}^{(m)}$, supply regulation $B_{4}^{(m)}$, and multi-platform access $B_{5}^{(m)}$, namely $B_{{}}^{(m)} = \left\{ {B_{1}^{(m)} ,B_{2}^{(m)} ,B_{3}^{(m)} ,B_{4}^{(m)} ,B_{5}^{(m)} } \right\}$. (1) Network externalities $B_{1}^{(m)}$. A network externality is a positive relationship between the utility gained by a user in the use of a product or service and the total number of users. That is, the higher the number of users, the higher the utility gained by the users. Network externalities in a two-sided market environment can also be called cross-network externalities. Both sides of the users connected by the platform are connected in some way, and an increase in the number of users on one side leads to an increase in the utility of users on the other side. (2) Asymmetric pricing $B_{2}^{(m)}$. The bilateral market pricing model differs from the traditional pricing model in that there are three main influencing factors: marginal cost on both sides of the platform, network externalities on both sides, and the price elasticity of demand. The higher the price elasticity of demand on one side of the platform, the lower the network externality it has on the other side of the platform. And the higher the marginal cost on one side of the platform, the higher the pricing on that side. Thus, we often see platforms attracting consumers with low prices and making promises, while at the same time, the platform charges the merchant a fee. (3) Demand dependence $B_{3}^{(m)}$. Users on both sides of the platform are dependent on the products or services offered by the platform. Their needs cannot be met or fulfilled elsewhere than on the platform. The demand of the platform merchant is the need to satisfy the demand of the consumer, and the demand of the consumer is the need for the products and services on the merchant’s side. The two are linked together by the products and services in the platform and satisfy each other’s needs through the platform. If either side of the platform is missing, such a demand will not exist, meaning that the products and services offered by the platform are not independent. (4) Supply regulation $B_{4}^{(m)}$. Platforms in the marketplace want to pursue more benefits and achieve their own pursuits; they need to meet the needs of bilateral users, reduce transaction costs, and improve transaction efficiency. In this process, the platform does not have to think too much about the value of both users. However, because bilateral users have different aspirations, platforms need to employ various means to manage the balance between insufficient and excessive demand. At the same time, sunk cost is high and the upfront operational risk is high due to the existence of economies of scale on the platform. (5) Multi-platform access $B_{5}^{(m)}$. Driven by the desire to maximize profits, bilateral users of platforms often trade on multiple platforms. This seriously affects the pricing of products and the choice of competitive strategies by platforms in two-sided markets. Products and services can also be characterized by strong substitutability due to the non-exclusivity of bilateral users. However, if two-sided markets are not characterized by multi-platform access, platforms also face a new dilemma, namely the apparent cap on user scale expansion.

2.2.3.2 Platform Economy Theory

As a new economic development concept, the platform economy is the sum of all network-based relationships of economic activity. For the companies involved in the platform economy, the model manifests itself as a new economic development model that forms an effective two-sided or multilateral market by means of information matching, which in turn leads to a new economic development model with a cross-border network effect. It can also be seen as a new economic interaction infrastructure, the logic of which is shown in the diagram (Fig. 2.12).

Fig. 2.12

The logic of forming a platform economy

In the platform economy ecosystem, the platform operator (platform company) $b_{i}^{(p)}$ is still the core. The rest of the participants, whether from the supply side of the network or the idle demand side, are collectively referred to as platform users $c_{j}^{(p)}$. In the e-commerce domain $r_{ij}^{(p)} (I)$, the function has a value domain of {0,1}, where $I$ represents the full information set, which includes all information, such as the net assets, equity structure and net income of the platform, the assets of the platform users, and the level of knowledge about the platform. $r_{ij}^{(p)} (I) = 0$ means that the platform enterprise $b_{i}^{(p)}$ and the platform user $c_{j}^{(p)}$ cannot conduct e-commerce transactions if the information I is known. $r_{ij}^{(p)} (I) = 1$ means that the platform enterprise $b_{i}^{(p)}$ and the platform user $c_{j}^{(p)}$ can conduct e-commerce transactions if the information I is known.

The transaction relationship between the platform enterprise $b_{i}^{(p)}$ and the platform user $c_{j}^{(p)}$ is defined as $R^{(p)} (I)$, and the elements of row i and column j of the matrix are $r_{ij}^{(p)} (I)$.

$$ R^{(p)} (I) = \left( {\begin{array}{*{20}c} {r_{11}^{(p)} (I)} & {r_{12}^{(p)} (I)} & \cdots & {r_{1j}^{(p)} (I)} \\ {r_{21}^{(p)} (I)} & \ddots & \ddots & \vdots \\ \vdots & \ddots & \ddots & \vdots \\ {r_{i1}^{(p)} (I)} & \cdots & \cdots & {r_{ij}^{(p)} (I)} \\ \end{array} } \right) $$

(2.9)

There are five key features of the platform economy. First, scale economies. The previous summary talked about the long-tail effect, whose basic feature is the addition of new services to the established platform. It does not substantially increase its marginal cost. This not only allows the platform to scale easily, but also does not entail too high a marginal cost. As a result, larger companies will be more productive and more competitive. Secondly, economies of scope. It is cheaper to produce multiple products simultaneously than to produce individual products separately. It follows that companies producing multiple products are more efficient and have a wider range of business than those producing a single product. Due to the economies of scope, it becomes very common for platforms to start expanding their business as soon as they are established. Thirdly, network externalities. This is primarily an economy of scale on the demand side. That is, the more consumers there are, the higher the value of use per capita. There are two main reasons for network effect externalities, one is that the influx of consumers increases the size of the market, thus providing consumers with the opportunity to be able to enjoy better quality services. The second is that the increased market size provides further incentives for platforms to innovatively offer more and better services. Fourthly, the dual/multilateral marketplace. Instead of facing only buyers and sellers, platforms have to provide services for multilateral parties. For example, a trading platform for second-hand goods faces both sellers and buyers, as well as third-party appraisers. The platform’s price for each counterparty is inversely related to its revenue, so the platform needs to consider the impact on the other party when pricing one party. Fifthly, big data analytics. Digital platforms are significantly better than traditional platforms in terms of scale, speed, and data. These features allow platforms to break through the constraints of time, space, and location. As a result, digital platforms offer enormous advantages in terms of the transmission, analysis, collection, and use of information.

The platform economy model represents the new productivity in the digital economy era and is a synthesis of the Internet economy. In the traditional e-commerce industry, platforms play the role of connecting producers and consumers, while also creating value. Firstly, the e-commerce model under the platform economy is more flexible due to the way production and organization are carried out. Consumer needs are met in many ways, including upgrading needs and personalized needs. It also solves the problem of the traditional economic model where flexible manufacturing is not possible if the scale is too small. For example, data analysis and processing are used to allocate resources across the chain. The overall production capacity is increased and the scope of production of the company is expanded. Secondly, the platform economy model can enrich the e-commerce industry chain, provide one-stop services, and fundamentally connect upstream and downstream enterprises to reach a win–win situation. One of the most popular strategies is the ecosystem strategy. By implementing this strategy, platforms offer other types of products and services in addition to the basic online trading services and at a lower cost. At the same time, the platform will change its strategy according to the scale of its users. Incubating new businesses or industries based on customer demand can effectively drive innovation in the e-commerce model. Thirdly, the technological advantages of the platform economy will give the e-commerce industry the function of sensitization, which is conducive to product and service innovation of enterprises. With the addition of technologies such as big data, blockchain, and cloud computing, the interactive function of consumer information data is revealed. The analysis of information after it has been datafied allows e-commerce companies to keep abreast of consumer data. The consumer shopping experience is optimized.

2.2.3.3 Sharing Economy Theory

The sharing economy, which is also a collaborative consumption economy, was first proposed by the American sociologist Felson. The sharing economy is built on the basis of the mobile Internet. The connotation is an economic model in which the right to use idle resources or services is temporarily transferred by posting information on an online intermediary platform, for which a certain amount of financial compensation is received. The sharing economy offers consumers more individual goods and services in a precise and timely manner. At the same time, it can make full use of unused resources to exploit them effectively.

The essence of the sharing economy is to enhance the utilization of unused resources or services by matching supply and demand. From a supply-side perspective, the sharing economy is about identifying one’s own supply needs and transferring the use of idle resources or services for a specified period of time through matching, while obtaining a certain financial return. From a demand-side perspective, the sharing economy is about having a relevant need for a resource or service without having to acquire ownership of it. The right to use it can be obtained temporarily for a small amount of money. The development and evolution of the sharing economy, in fact, is a process of disintermediation and re-intermediation. De-intermediation means that supply and demand are matched and dovetailed directly, without the need for a third-party platform to play a role between the two, in order for products and services to be offered and received. Re-intermediation is based on re-intermediation, in order to make the supply and demand sides understand each other and trust each other more, the two sides will be connected together to the shared platform, to achieve the accuracy and efficiency of the matchmaking. The aim of re-intermediation is therefore to expand the frequency and area of contact between supply and demand and to improve the efficiency of matching supply and demand.

The sharing economy ecosystem $S_{{}}^{(e)}$ consists of four elements. The first is the public $S_{1}^{(e)}$, which is currently dominated by individuals $S_{11}^{(e)}$, but in the future will be extended to companies $S_{12}^{(e)}$, governments $S_{13}^{(e)}$, etc., i.e. $S_{1}^{(e)} = \left\{ {S_{11}^{(e)} ,S_{12}^{(e)} ,S_{13}^{(e)} \ldots \ldots } \right\}$. Secondly, spare resources $S_{2}^{(e)}$, mainly including money, houses, cars, and other goods $S_{21}^{(e)}$, and personal knowledge $S_{22}^{(e)}$, skills $S_{23}^{(e)}$, and experience $S_{24}^{(e)}$, i.e. $S_{2}^{(e)} = \left\{ {S_{21}^{(e)} ,S_{22}^{(e)} ,S_{23}^{(e)} ,S_{24}^{(e)} \ldots \ldots } \right\}$. Thirdly, social platforms $S_{3}^{(e)}$, which mainly refer to platforms that have been shared on a large scale using Internet technology. Fourth, income generation $S_{4}^{(e)}$. There are three basic models: online renting $S_{41}^{(e)}$, online second-hand trading $S_{42}^{(e)}$, and online odd jobs $S_{43}^{(e)}$, namely $S_{4}^{(e)} = \left\{ {S_{41}^{(e)} ,S_{42}^{(e)} ,S_{43}^{(e)} \ldots \ldots } \right\}$. These three are also the basic sharing models. That is to say, the absence of even one of these three basic models may not be the sharing economy we are concerned with. It is important to note that the three models mentioned here are primarily for individual participants. Internationally, the phenomenon of corporate and government participation has now emerged. So the sharing economy will be further enriched. Thus, the sharing economy ecosystem $S_{{}}^{(e)}$ can be expressed by the formula (Fig. 2.13):

$$ S_{{}}^{(e)} = \left\{ {S_{1}^{(e)} ,S_{2}^{(e)} ,S_{3}^{(e)} ,S_{4}^{(e)} } \right\} $$

(2.10)

Fig. 2.13

The four elements of the sharing economy ecosystem

In terms of industry coverage, the sharing economy is also accelerating its penetration into many areas of people’s clothing, food, housing, and transport, profoundly changing the way people produce and consume. The sharing economy currently covers various areas such as education and teaching, food, logistics and storage, logistics and transport, infrastructure, urban construction, and finance. The main actors involved in sharing are also moving from individuals to inter-company. The sharing economy has made a significant contribution to the repair and reshaping of the national economy and is shaking the foundations of traditional economic theory. There is an increasing tendency to think in terms of collaborative sharing. No longer limited to the ownership of products and services, the emphasis is more on the temporary ownership of products and services.

2.2.3.4 Symbiosis Theory

The concept of symbiosis was born in the biological world. It is generally accepted that symbiosis refers to different species living together in some kind of material association, forming a relationship of co-survival, co-evolution, or suppression. And there are three main elements that symbiosis encompasses. One is the symbiotic unit, which is a basic unit of energy generation and exchange. It is the basic material condition for the formation of a symbiosis. Second is the symbiotic pattern, which reflects the relationship between the symbiotic units in terms of material information exchange, interactions, bonding, and energy conversion. The third is the symbiotic environment, which is the collection of all factors other than the symbiotic unit (Fig. 2.14).

Fig. 2.14

Symbiotic system element relationships

A symbiotic system $S_{{}}^{(s)}$ is a system formed by symbiotic units in a certain symbiotic environment according to a certain symbiotic pattern, as shown in Fig. 2.1. In Fig. 2.1, E₁, E₂, …, E_i denotes the symbiotic environment, U₁, U₂, …, U_j denotes the symbiotic unit, and M₁, M₂, …, M_n denotes the symbiotic mode. In symbiotic systems $S_{{}}^{(s)}$, there are differences between the symbiotic environment E_i, the symbiotic unit U_j, and the symbiotic mode M_n. The symbiotic relationship formed between the symbiotic units can be represented by the degree of symbiosis between the symbiotic units. The symbiotic system $S_{{}}^{(s)}$ is expressed by the equation:

$$ S_{ijn}^{(s)} = \left\{ {E_{i} ,U_{j} ,M_{n} } \right\} $$

(2.11)

Industrial symbiosis within a company between sectors, between companies, or between regions will cover many symbiotic units. Under the constraint of a symbiotic nature, it may be possible for either separate industry module A or B to exist independently. And when industry modules A and B are present at the same time, there will be at least one industry module A or B dependent on industry module B or A. The symbiosis model includes the symbiotic organization model and the symbiotic behavior model. Depending on the symbiotic organization and symbiotic behavior, different subjects in the same symbiotic relationship also have corresponding symbiotic characteristics, as shown in Figs. 2.15 and 2.16.

Fig. 2.15

Symbiotic organization model

Fig. 2.16

Symbiotic behavior patterns

Breakthrough ideas can be sought to promote the symbiosis of companies in the e-commerce sector. Firstly, promote the opening up of ecosystems and the enrichment of species, thus optimizing the structure of ecosystems. Similar to the diversity of species in nature, the e-commerce ecosystem requires a diversity of companies, models, and strategies to optimize the structure of the system. As the leading species of the ecosystem, it needs to recognize the importance of the platform and give full play to its role. Timely adjustments need to be made in strategies to make the platform more open according to development needs. A more diversified ecosystem also encourages companies in the symbiotic system to improve their competitiveness through rational market positioning and business model innovation based on their respective comparative advantages. For example, leader species can effectively integrate system resources and promote deeper and wider ecosystems through new circulation models. By expanding the market space in this way, more species are attracted and accommodated to participate. Ultimately, the structure of the ecosystem is optimized and the healthy development of the ecosystem is promoted. Secondly, promote the sharing of various types of resources, improve relationships between species, and enhance ecosystem function. With the separation of resources, there is a high degree of randomness in the symbiosis of enterprises, poor interdependence, and symbiotic stability, and it is difficult to improve ecosystem function. And the sharing of resources among companies in a symbiotic system can enhance operational synergies between companies. It facilitates the formation of a full supply chain, which ultimately enhances the value-added space. Therefore, leadership populations should break down the barriers between different species. Promote a shift in the symbiotic interface of companies in symbiotic systems from purely “exogenous interfaces” such as markets to “strong endogenous interfaces” such as trust and practices. In particular, it is important to promote a reduction in the dependence of other species on the leader species. There should be a shift in the relationship with the leader species from a subordinate network relationship to a self-organizing network relationship. This will enable the rapid formation of information communication, resource sharing, and value transfer between other species. And based on this work together to improve strength and even form the brand effect of self-organized clusters. As a result, species within the ecosystem co-evolve based on resource sharing and deep collaboration, enhancing ecosystem function. Economies of scale and scope can be realized while creating more value for consumers.

2.3 Summary of this Chapter

In general, the interplay of “information flow, capital flow, and logistics” is always present in e-commerce. China has certain comparative advantages in the field of e-commerce. Supporting these industries with comparative advantages and nurturing them to become core competitive industries both internationally and domestically require the combined action of the invisible hand of an “efficient market” and the invisible hand of a “promising government”. “Efficient markets”, which enable companies to make decisions based on price signals; and “promising government”, which relies on efficient markets to help companies overcome market failures and hedge against various cyclical fluctuations and shocks.

This chapter summarizes the basic theories of e-commerce under the guidance of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era. It is a comprehensive overview of the laws, regulations, policies, and other doctrines of the “visible hand” of government. It also compares the theories on the demand side, supply side, and platform side of the “invisible hand” of the market. The principles of “active government” and “efficient markets” are explained in depth and how they work together in the field of e-commerce. A country can achieve faster, more inclusive, and sustainable growth and development by using the two hands of the market and the government simultaneously. Only with the joint efforts of an “efficient market” and a “promising government” will enterprises be able to achieve longer-term development in this track of e-commerce. Only then can we help China become a major economic power in the world and contribute to the great rejuvenation of the Chinese nation (Fig. 2.17).

Fig. 2.17

Basic theoretical framework for e-commerce

Today, e-commerce has injected new dynamism into four areas: production, trade, distribution, and consumption. The internal operational elements have undergone a huge transformation and innovation. In the production chain, enterprises have used emerging technologies and tools such as big data, cloud computing, and the Internet of Things to achieve self-reinvention of e-commerce production models as well as iterative product innovation. The personalized and diversified needs of consumers are met. In the transaction chain, e-commerce platforms and various technology service providers are interconnected, building new information bridges and transaction channels for producers and consumers; at the same time, technological integration continues to give rise to new e-commerce transaction models, and the e-commerce ecosystem continues to expand. In the circulation chain, e-commerce reshapes the circulation chain, changes the “three streams” model, promotes circulation organization innovation, reduces costs, and increases efficiency in the circulation chain. In the consumption segment, the new e-commerce model has pushed consumer society to mature, with changes in consumer psychology and the formation of new consumer characteristics. At the same time, technological advances have driven innovation in consumption models and changed traditional consumer behavior. The two changes work together in the production chain, putting forward new requirements for production models and products. In summary, e-commerce economic activities form a closed loop.

Therefore, only under the joint action of “effective market” and “competent government”, can we deeply understand the basic principles of e-commerce, master the operation mode of e-commerce, and give full play to the advantages of e-commerce features. Only then can we ensure the unimpeded flow of production, transaction, circulation, and consumption in economic activities, complete the rebuilding of the industrial base and innovation of the industrial chain, and truly promote the reform and innovation of the supply side, the empowerment, and upgrading of the intermediate links and the quality and expansion of the demand side.

2.4 Review Reflection Questions

• 1. Please talk about your understanding of the relationship between the guiding ideology of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era and e-commerce. Briefly describe the main objectives and major development tasks of the 14th Five-Year Plan for e-commerce.

• 2. How do you understand e-commerce sector policies? What are the specific elements?

• 3. What are the tax-related regulations in the E-Commerce Law of the People’s Republic of China? Please give examples.

• 4. What are the current initiatives for collaborative e-commerce regulation in China?

• 5. Please tell us your understanding of the e-commerce talent policy, anti-trust policy, and intellectual property policy, respectively.

• 6. What is the Long-Tail Theory? What is the principle of the Long-Tail Theory?

• 7. What is consumer behavior theory? Please talk about your understanding of the AISAS model.

• 8. What is Maslow’s Hierarchy of Needs? Please briefly describe the application of the five levels to the field of e-commerce.

• 9. Briefly describe the theory of price elasticity of demand. Talk about your understanding of price elasticity of demand and price inelasticity of demand.

• 10. Briefly describe the theories of innovation, comparative advantage, and competitive advantage. Discuss your understanding of the application of each of these theories to the practice of e-commerce.

• 11. Please briefly describe the theory of low-carbon economy. Talk about what options there are for low-carbon pathways for businesses.

• 12. What are the principles of the two-sided market theory and the platform economy theory, respectively? What is the difference between the two? Please discuss your understanding.

• 13. Please provide a brief description of the four elements of the sharing economy.

• 14. How do you understand symbiotic systems? Please briefly describe each of the four stages of the symbiotic organization model and the symbiotic behavior model.

• 15. What role do “efficient markets” and “promising government” play in making China a major economic power and in realizing the Chinese dream?