Investing in a Website: A Top Dog or a Resource-Based Strategy for Firms?

This article is aimed at analyzing the motivations on the part of firms to invest in websites. What are the drivers behind such investments? In order to address this issue, we have considered two alternative theoretical frameworks. The first relies upon resourcebased theory; the approach herein states that firms with greater resources and competencies are expected to invest more heavily in Internet technologies, especially those firms present in rent-yielding markets (concentrated markets with strong entry barriers). The theory of industrial organization constitutes a second framework and leads to the alternative conjecture that firms should have more incentive to invest in a website when they are in highly-competitive markets. A website can indeed serve as a strategic means for creating artificial entry barriers and eliminating rivals. We have tested these two hypotheses using a French database and found the resource-based approach to be more relevant in explaining the drivers of website investment. In particular, firms tend to invest more in websites when markets are highly concentrated and little exposed to international trade.