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E-commerce and the Market Structure of Retail Industries

Author

Listed:
  • Onsel Emre

    (University of Chicago)

  • Ali Hortacsu

    (University of Chicago and NBER)

  • Chad Syverson

    (University of Chicago and NBER)

Abstract

While a fast-growing body of research has looked at how the advent and di®usion of e- commerce has a®ected prices, much less work has investigated e-commerce's impact on the number and type of ¯rms operating in an industry. This paper theoretically and empirically takes up the question of which producers most bene¯t and most su®er as consumers switch to purchasing products online. We specify a general industry model involving consumers with di®ering search costs buying products from heterogeneous-type producers. We inter- pret e-commerce as having created reductions in consumers' search costs. We show how such shifts in the search cost distribution reallocate market shares from an industry's low- type producers to its high-type businesses. We test the model using data for two industries in which e-commerce has arguably decreased consumers' search costs considerably: travel agencies and bookstores. We ¯nd evidence in both industries of the market share shifts predicted by the model. Interestingly, while both industries experienced similar changes, the speci¯c mechanisms through which e-commerce induced them were di®erent. For travel agencies, the shifts re°ected aggregate changes driven by airlines' reductions in agent com- missions as consumers started buying tickets online. For bookstores, on the other hand, industry-wide declines in small book stores re°ected aggregated market-speci¯c impacts, evidenced by the fact that more small-store exit occurred in those local markets where consumers' use of e-commerce channels grew fastest.

Suggested Citation

  • Onsel Emre & Ali Hortacsu & Chad Syverson, 2005. "E-commerce and the Market Structure of Retail Industries," Working Papers 05-24, NET Institute, revised Oct 2005.
  • Handle: RePEc:net:wpaper:0524
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L8 - Industrial Organization - - Industry Studies: Services

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