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Market Structure and Market Performance in E-Commerce

  • Franz Hackl
  • Michael E. Kummer
  • Rudolf Winter-Ebmer
  • Christine Zulehner

We analyze the interaction between market structure and market performance and how it varies over the product cycle. To account for the potential endogeneity in this relation, we use an instrumental variable approach. We combine data from the largest Austrian online market for price comparisons with retail data on wholesale prices provided by a major hardware producer for consumer electronics. Our results show that instrumenting is important for estimating the empirical effect of competition on the markup of the price leader. One more firm in the market is associated with a reduction of the price leader’s markup which is equivalent to competition between existing firms for an additional three weeks in the product life cycle. Our results support search theoretic models and contradict models of monopolistic competition. Moreover our results support the existence of price dynamics over the product cycle. They also highlight the substitutability between newly innovated and old expiring technologies and how it varies with respect to competitors’ and own brand innovations.

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File URL: http://www.econ.jku.at/papers/2014/wp1404.pdf
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Paper provided by Department of Economics, Johannes Kepler University Linz, Austria in its series Economics working papers with number 2014-04.

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Length: 45 pages
Date of creation: Jan 2014
Date of revision:
Handle: RePEc:jku:econwp:2014_04
Contact details of provider: Fax: +43 732-2468-8238
Web page: http://www.econ.jku.at/

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