How Cannibalistic is the Internet Channel?
During the past decade, irrational exuberance has turned into a possibly equally irrational pessimism about what the Internet can accomplish. The fear of getting ruined through cannibalization losses has recently deterred many firms from deploying the Internet as a distribution channel. But do Internet channels really cannibalize firms' entrenched channels, or is this widely held assumption exaggerated? To answer this question, we apply recent structural-break time-series econometrics to quantify the impact of an Internet channel addition on the long-run performance evolution of a firm's established channels. Using a database of 85 Internet channel additions over the last ten years in the British and Dutch newspaper industries, we find that the often-cited cannibalization fears have been largely overstated. The Internet therefore need not be disruptive to established companies and channels. This does, however, not imply that firms enjoy free play in setting up Internet channels. In cases where the newly established Internet channel too closely mimics the entrenched channels, substantial cannibalization is more likely to take place.
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