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E-commerce and the Market Structure of Retail Industries

Onsel Emre, Ali Hortacsu and Chad Syverson
Additional contact information
Onsel Emre: University of Chicago

No 05-24, Working Papers from NET Institute

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.

Pages: 32 pages
Date: 2005-10, Revised 2005-10
New Economics Papers: this item is included in nep-com, nep-ent, nep-ict and nep-mkt
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Related works:
Journal Article: E-Commerce and the Market Structure of Retail Industries (2010) Downloads
Working Paper: E-commerce and the Market Structure of Retail Industries (2008) Downloads
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