Are neighbors welcome ? e-buyer search, price competition and coalition strategy in the Internet retailing

We study the forces that drive the phenomenon of aggregation of merchant Web sites (B-to-C) competing in a differentiated electronic market, where the search cost for the consumers is independent from the adaptation/transportation cost they incur when the good they find does not match with their preference. We focus on the possibility for Internet sites to coalesce, which results in a reduction of the search cost to find other sites within the coalition. We do the static comparative of coalition structures (depending on whether there is little or high differentiation between partners), when firms compete in price. We find that firms prefer to coalesce with highly differentiated partners, and set in this case lower prices.