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E-Commerce and the Market Structure of Retail Industries

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  • Maris Goldmanis
  • Ali Hortaçsu
  • Chad Syverson
  • �nsel Emre

Abstract

This article examines the effect of the advent and diffusion of e-commerce on supply-side industry structure. We specify a general industry model involving consumers with differing search costs buying products from heterogeneous producers. We interpret e-commerce as a reduction in consumers' search costs. We show how it reallocates market shares from high-cost to low-cost producers. We test the model using US data for three industries: travel agencies, bookstores and new car dealers. Each industry exhibits the market share shifts predicted by the model but the mechanisms vary, ranging from aggregate factors in the travel industry to local-market factors in the other two industries. Copyright � The Author(s). Journal compilation � Royal Economic Society 2009.

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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 120 (2010)
Issue (Month): 545 (06)
Pages: 651-682

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Handle: RePEc:ecj:econjl:v:120:y:2010:i:545:p:651-682

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References

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  1. Bagnoli, M. & Bergstrom, T., 1989. "Log-Concave Probability And Its Applications," Papers 89-23, Michigan - Center for Research on Economic & Social Theory.
  2. Clay, Karen, et al, 2002. "Retail Strategies on the Web: Price and Non-price Competition in the Online Book Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 50(3), pages 351-67, September.
  3. Rauh, Michael T., 2007. "Nonstandard foundations of equilibrium search models," Journal of Economic Theory, Elsevier, vol. 132(1), pages 518-529, January.
  4. Morton, Fiona Scott & Zettelmeyer, Florian & Silva-Risso, Jorge, 2001. "Internet Car Retailing," Journal of Industrial Economics, Wiley Blackwell, vol. 49(4), pages 501-19, December.
  5. Michael R. Baye & John Morgan & Patrick Scholten, 2004. "Price Dispersion in the Small and in the Large: Evidence from an Internet Price Comparison Site," Working Papers 2004-03, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  6. Chad Syverson, 2001. "Market Structure and Productivity: A Concrete Example," Working Papers 01-06, Center for Economic Studies, U.S. Census Bureau.
  7. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-50, September.
  8. Clay, Karen & Krishnan, Ramayya & Wolff, Eric, 2001. "Prices and Price Dispersion on the Web: Evidence from the Online Book Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 49(4), pages 521-39, December.
  9. Ali Hortaç Su & Chad Syverson, 2004. "Product Differentiation, Search Costs, And Competition in the Mutual Fund Industry: A Case Study of S&P 500 Index Funds," The Quarterly Journal of Economics, MIT Press, vol. 119(2), pages 403-456, May.
  10. Michael Smith & Erik Brynjolfsson, 1999. "Frictionless Commerce? A Comparison of Internet and Conventional Retailers," Computing in Economics and Finance 1999 1022, Society for Computational Economics.
  11. Ali Hortacsu & Chad Syverson, 2003. "Product Differentiation, Search Costs, and Competition in the Mutual Fund Industry: A Case Study of the S&P 500 Index Funds," NBER Working Papers 9728, National Bureau of Economic Research, Inc.
  12. Jeffrey R. Brown & Austan Goolsbee, 2002. "Does the Internet Make Markets More Competitive? Evidence from the Life Insurance Industry," Journal of Political Economy, University of Chicago Press, vol. 110(3), pages 481-507, June.
  13. McCall, John J, 1970. "Economics of Information and Job Search," The Quarterly Journal of Economics, MIT Press, vol. 84(1), pages 113-26, February.
  14. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
  15. Michael T. Rauh, 2006. "Strategic Complementarities and Search Market Equilibrium," Working Papers 2006-01, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  16. Benabou, Roland, 1988. "Search market equilibrium bilateral heterogeneity and repeat purchases," CEPREMAP Working Papers (Couverture Orange) 8806, CEPREMAP.
  17. George J. Stigler, 1961. "The Economics of Information," Journal of Political Economy, University of Chicago Press, vol. 69, pages 213.
  18. Simon Latcovich & Howard Smith, 2001. "Pricing, Sunk Costs, and Market Structure Online: Evidence from," Oxford Review of Economic Policy, Oxford University Press, vol. 17(2), pages 217-234, Summer.
  19. Fiona Scott Morton & Florian Zettelmeyer & Jorge Silva-Risso, 2001. "Internet Car Retailing," NBER Chapters, in: E-commerce, pages 501-519 National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Fershtman, Chaim & Fishman, Arthur & Zhou, Jidong, 2013. "Search and Categorization," MPRA Paper 53166, University Library of Munich, Germany.
  2. Lach, Saul & Moraga-González, José-Luis, 2009. "Asymmetric Price Effects of Competition," CEPR Discussion Papers 7319, C.E.P.R. Discussion Papers.
  3. Lendle, Andreas & Olarreaga, Marcelo & Schropp, Simon & Vezina, Pierre-Louis, 2012. "There goes gravity : how eBay reduces trade costs," Policy Research Working Paper Series 6253, The World Bank.
  4. Marc Rysman & Ginger Zhe Jin, 2012. "Platform Pricing at Sports Card Conventions," Boston University - Department of Economics - Working Papers Series WP2012-015, Boston University - Department of Economics.
  5. Jason Allen & Robert Clark & Jean-François Houde, 2008. "Market Structure and the Diffusion of E-Commerce: Evidence from the Retail Banking Industry," Working Papers 08-32, Bank of Canada.
  6. Robert Clark & Jason Allen & Jean-Francois Houde, 2010. "Price negotiation in differentiated product markets: An analysis of the market for insured mortgages in Canada," 2010 Meeting Papers 1072, Society for Economic Dynamics.

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