This paper offers an analysis of the evolution of e-commerce markets. We develop a model in which an initial group of small, no-name click firms create such markets by offering horizontally differentiated customized or versioned products and competing in prices. Subsequently, a traditional brick firm enters by stretching its brand name into the digital marketplace. Such entry causes many initial entrants to exit. Contrary to much popular and formal literature, we show that the volume of initial entry may well be inefficiently low despite the anticipated later exit. In addition, the conventional relationship between sunk cost and market structure is substantially weakened.
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Find related papers by JEL classification: L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
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Don Fullerton & Gilbert E. Metcalf, 2002.
"Tax Incidence,"
NBER Working Papers
8829, National Bureau of Economic Research, Inc.
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Fullerton, Don & Metcalf, Gilbert E., 2002.
"Tax incidence,"
Handbook of Public Economics,
in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 26, pages 1787-1872
Elsevier.
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