E-Commerce and the Market Structure of Retail Industries

32 Pages Posted: 22 Nov 2005

See all articles by Önsel Emre

Önsel Emre

University of Chicago - Department of Economics

Ali Hortacsu

University of Chicago - Department of Economics; National Bureau of Economic Research (NBER)

Chad Syverson

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: October 2005

Abstract

While a fast-growing body of research has looked at how the advent and diffusion of e-commerce has affected prices, much less work has investigated e-commerce's impact on the number and type of firms operating in an industry. This paper theoretically and empirically takes up the question of which producers most benefit and most suffer as consumers switch to purchasing products online. We specify a general industry model involving consumers with differing search costs buying products from heterogeneous-type producers. We interpret 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 find evidence in both industries of the market share shifts predicted by the model. Interestingly, while both industries experienced similar changes, the specific mechanisms through which e-commerce induced them were different. For travel agencies, the shifts reflected aggregate changes driven by airlines' reductions in agent commissions as consumers started buying tickets online. For bookstores, on the other hand, industry-wide declines in small book stores reflected aggregated market-specific impacts, evidenced by the fact that more small-store exit occurred in those local markets where consumers' use of e-commerce channels grew fastest.

Keywords: e-commerce, retail industries

Suggested Citation

Emre, Onsel and Hortacsu, Ali and Syverson, Chad, E-Commerce and the Market Structure of Retail Industries (October 2005). NET Institute Working Paper No. 05-24, Available at SSRN: https://ssrn.com/abstract=851267 or http://dx.doi.org/10.2139/ssrn.851267

Onsel Emre

University of Chicago - Department of Economics ( email )

1126 East 59th Street
Chicago, IL 60637
United States

Ali Hortacsu (Contact Author)

University of Chicago - Department of Economics ( email )

1126 East 59th Street
Chicago, IL 60637
United States
773-702-5841 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Chad Syverson

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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