Introduction to the Special Issue: Formal Modeling for Electronic Commerce

Steven O. Kimbrough and D.-J. Wu, Guest Editors
International Journal of Electronic Commerce,
Volume 5, Number 1, Fall 2000, pp. 5.

Abstract: The papers in this Special Issue are, individually and collectively, contributions to the answering of two interrelated questions of overarching importance in electronic commerce:

From a research perspective, these are perhaps the most fundamental questions we need to ask regarding electronic commerce. The two questions-the design-and-control question, and the market-operation question-clearly must be answered together. How organizations can best operate in the new electronic markets will depend in no small part on the operating characteristics of those markets, as made possible by the application of knowledge to available computer and communications technologies. Conversely, the value and usability of new technologies will depend in equally large part on how they can be used in relevant markets. This much is readily apparent, and is profusely illustrated by the papers in this Special Issue.

The papers that follow add a deeper connection between the two questions, for technologies developed under motivation from the design-and-control question are often part of the answer to the market-operation question. We see this, for example, in the case of intelligent, semi-autonomous, communicating agents that learn. These technologies do not simply offer the prospect of great new efficiencies and replacement of labor. They may also be essential elements in the management and operation of the markets they enable. We should expect a similar continued joint unfolding of answers to our two fundamental questions in electronic commerce.

The papers in this Special Issue also share a common methodological outlook: They present and develop formal models pertaining to the answering of the underlying questions. There is essentially an unlimited and increasingly urgent need to provide formal analysis for electronic commerce. This is required for theory, because theory without rigor and clarity is not worth the name. And it is required for practice, because without formalization there can be no computerization. Thus, while there certainly is much of value to be said in a nonformal way, the fact that the approach here is strongly formal can only be welcomed.

Each of the five papers in this Special Issue addresses some of the critical theoretical issues raised above. Collectively, they present a promising picture of progress. Further, they open a toolbox of formal-analysis techniques that should prove useful for frontier research in the field with lasting value. These tools have been used to explore a range of topics, including artificial intelligence, logic, mathematical modeling/management science tools, and economic analysis. Four of the papers were selected from two mini-tracks of the Thirty-second Hawaii International Conference on System Sciences, for which we express our thanks. The fifth was submitted by invitation. All the papers have been peer reviewed.

The first paper, “Artificial Agents for Discovering Business Strategies for Network Industries,” by D.-J. Wu, explores the use of artificial agents to discover “good” pricing, investment, and operating strategies for network industries. As such, it is an example of design-and-control technology applied to market management problems. The paper models the first-best pricing, investment, and operating problems for general network industries, applies this theoretical framework to the electric power industry, and provides computational results on realistic problems using artificial agents.

The second paper, “Pricing and Product Design: Intermediary Strategies in an Electronic Market,” by Hemant K. Bhargava, Vidyanand Choudhary, and Ramayya Krishnan, is like the first in focusing mainly on the market-operation question. This paper uses an economic model to analyze an electronic intermediary’s strategies with respect to quality-of-service pricing, taking into account marginal costs and network externalities. Using well-established assumptions, the authors demonstrate surprising consequences in the context of electronic commerce.

The third paper, “A Formal Analysis of Auditing Principles for Electronic Trade Procedures,” by Roger W. H. Bons, Frank Dignum, Ronald M. Lee, and Yao-Hua Tan, effectively bridges our two fundamental questions. Automated trade procedures are, from a design-and-control perspective, a key technology for reducing transaction costs in business-to-business electronic commerce. They also offer the prospect of automated auditing of business processes, and thus may play an important role in answering the market-operation question. This paper presents the formal specification of the audit daemons method, using a combination of deontic, dynamic, and illocutionary modal logics. The same framework has been used for automatically checking the trustworthiness of electronic procedures, and has been applied to interorganizational trade procedures.

The final two papers fall more squarely in the category of design-and-control issues. Both explore semantic aspects of agent communications, a subject, as should now be clear, that has much import for market-operation issues.

The fourth paper is “KQML & FLBC: Contrasting Agent Communication Languages,” by Scott Moore. This paper compares KQML with an FLBC message that more directly represents the meaning of business messages. In a nuanced discussion, Moore illustrates many subtleties of meaning that need to be captured for effective electronic commerce.

The fifth paper is “On Lean Messaging with Unfolding and Unwrapping for Electronic Commerce,” by Steven O. Kimbrough and Yao-Hua Tan. This paper is a contribution to the goal of having a formal theory for the semantics of messaging in electronic data communication. The paper presents a framework that describes how interpretation of EDI messages works. In doing so it presents and develops such concepts as message unwrapping and unfolding. The paper accounts for the lean semantics attributable to current practices in EDI, while at the same time it sketches how a much richer formal apparatus may be brought to bear in business-to-business EDI.

As editors of this Special Issue, we are delighted to see the growth of formal modeling of electronic commerce. We believe that through the approach of formal analysis, academic research bids fair to have a major impact on electronic commerce practice. It is part of the profound excitement of our time that the best practice calls forth the deepest theoretical work.

STEVEN O. KIMBROUGH ( is a professor of operations and information management at the Wharton School, University of Pennsylvania. He received his Ph.D. in philosophy from the University of Wisconsin. His main research interests are in the fields of electronic commerce, logic modeling, and computational rationality. His active research areas include computational approaches to belief revision and nonmonotonic reasoning, formal languages for business communication, evolutionary computation (including genetic algorithms and genetic programming), and context-based information retrieval. He is currently co-principal investigator of the Logistics DSS project, which is part of DARPA’s Advanced Logistics Program.

D.-J. WU ( is SAP Alliance liaison and assistant professor of MIS at Bennett LeBow College of Business, Drexel University. He is a two-time winner of the SAP University Alliance Award (1998, 1999). His research interests lie in bidding and contracting in multiagent systems, artificial agents for business strategy discovery, electronic supply-chain management and electronic commerce, ERP systems, and genetic algorithms. Dr. Wu obtained his M.A. and Ph.D. from the Wharton School, University of Pennsylvania; and his B.E. in computer science and B.E. in industrial engineering from Tsinghua University in Beijing. His thesis was nominated for the best Ph.D. dissertation in the 1998 Elwood Buffa National Dissertation Award Competition in the United States.