E-commerce and the Market Structure of Retail Industries
While a fast-growing body of research has looked at how the advent anddiffusion of e- commerce has affected prices, much less work hasinvestigated e-commerce's impact on the number and type of firmsoperating in an industry. This paper theoretically and empirically takesup the question of which producers most benefit and most suffer asconsumers switch to purchasing products online. We specify a generalindustry model involving consumers with differing search costs buyingproducts from heterogeneous-type producers. We interpret e-commerce ashaving created reductions in consumers' search costs. We show how suchshifts in the search cost distribution reallocate market shares from anindustry's low- type producers to its high-type businesses. We test themodel using data for two industries in which e-commerce has arguablydecreased consumers' search costs considerably: travel agencies andbookstores. We find evidence in both industries of the market shareshifts predicted by the model. Interestingly, while both industriesexperienced similar changes, the specific mechanisms through whiche-commerce induced them were different. For travel agencies, the shiftsreflected aggregate changes driven by airlines' reductions in agentcommissions as consumers started buying tickets online. For bookstores,on the other hand, industry-wide declines in small book stores reflectedaggregated market-specific impacts, evidenced by the fact that moresmall-store exit occurred in those local markets where consumers' use ofe-commerce channels grew fastest.
Year of publication: |
2005
|
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Authors: | Emre, Onsel ; Hortacsu, Ali ; Syverson, Chad |
Institutions: | University of Chicago ; University of Chicago and NBER ; University of Chicago and NBER |
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