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Investing in a Website: A Top Dog or a Resource-Based Strategy for Firms?

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  • Martin, Ludivine
  • Penard, Thierry

Abstract

This article is aimed at analyzing the motivations on the part of firms to invest in websites. What are the drivers behind such investments? In order to address this issue, we have considered two alternative theoretical frameworks. The first relies upon resourcebased theory; the approach herein states that firms with greater resources and competencies are expected to invest more heavily in Internet technologies, especially those firms present in rent-yielding markets (concentrated markets with strong entry barriers). The theory of industrial organization constitutes a second framework and leads to the alternative conjecture that firms should have more incentive to invest in a website when they are in highly-competitive markets. A website can indeed serve as a strategic means for creating artificial entry barriers and eliminating rivals. We have tested these two hypotheses using a French database and found the resource-based approach to be more relevant in explaining the drivers of website investment. In particular, firms tend to invest more in websites when markets are highly concentrated and little exposed to international trade.

Suggested Citation

  • Martin, Ludivine & Penard, Thierry, 2005. "Investing in a Website: A Top Dog or a Resource-Based Strategy for Firms?," MPRA Paper 2503, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:2503
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    References listed on IDEAS

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    1. Dosi, Giovanni & Teece, David J. & Chytry, Josef (ed.), 1998. "Technology, Organization, and Competitiveness: Perspectives on Industrial and Corporate Change," OUP Catalogue, Oxford University Press, number 9780198290964.
    2. Fudenberg, Drew & Tirole, Jean, 1984. "The Fat-Cat Effect, the Puppy-Dog Ploy, and the Lean and Hungry Look," American Economic Review, American Economic Association, vol. 74(2), pages 361-366, May.
    3. Ruby Roy Dholakia & Nir Kshetri, 2004. "Factors Impacting the Adoption of the Internet among SMEs," Small Business Economics, Springer, vol. 23(4), pages 311-322, November.
    4. Foss, Nicolai J., 1998. "The resource-based perspective: An assessment and diagnosis of problems," Scandinavian Journal of Management, Elsevier, vol. 14(3), pages 133-149, March.
    5. Cotterill, Ronald W, 1986. "Market Power in the Retail Food Industry: Evidence from Vermont," The Review of Economics and Statistics, MIT Press, vol. 68(3), pages 379-386, August.
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    Cited by:

    1. Rozenn Perrigot & Thierry Pénard, 2012. "Determinants of E-commerce adoption by franchisors: Insights from the U.S. market," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201206, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
    2. Martin, Ludivine, 2009. "Understanding the implementation of e-business strategies: Evidence from Luxembourg," MPRA Paper 13645, University Library of Munich, Germany.

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    More about this item

    Keywords

    Internet strategy; e-commerce; entry barriers; resource-based theory;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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