Internet Channel Entry: Retail Coverage and Entry Cost Advantage

Information Technology Management, 8, 2 (June 2007), 111-133

33 Pages Posted: 24 May 2006 Last revised: 6 Jun 2015

See all articles by June Cheng

June Cheng

Hong Kong Polytechnic University - Faculty of Business

Barrie R. Nault

University of Calgary - Haskayne School of Business

Date Written: January 16, 2006

Abstract

In this research we study how existing market coverage affects the outcome of the Internet channel entry game between an existing retailer and a new entrant. A market is not covered when some consumers with low reservation prices are priced out by existing retailers and do not purchase. In a model with multiple existing retailers and a potential new entrant, we demonstrate that when costs are equal, one of the existing retailers enters the Internet chan- nel first. However, if the market is covered by existing retailers before entry, then because of the threat of Internet channel entry by the potential new entrant, retailer entry cannibalizes existing retail profits — cannibalizing at a loss. In addition, if a potential new entrant has a slight advantage in Internet channel entry costs and the market is not covered by existing retailers, then the new entrant enters the Internet channel first. If the market is covered by existing retailers, then the new entrant must have a larger Internet channel entry cost advantage to be first to enter the Internet channel.

Keywords: retail pricing, B2C electronic commerce, market entry, stand-alone incentive, preemption incentive, timing game, cost advantage

Suggested Citation

Cheng, June and Nault, Barrie R., Internet Channel Entry: Retail Coverage and Entry Cost Advantage (January 16, 2006). Information Technology Management, 8, 2 (June 2007), 111-133. Available at SSRN: https://ssrn.com/abstract=889366 or http://dx.doi.org/10.2139/ssrn.889366

June Cheng (Contact Author)

Hong Kong Polytechnic University - Faculty of Business ( email )

Hung Hom, Kowloon
Hong Kong

Barrie R. Nault

University of Calgary - Haskayne School of Business ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada

HOME PAGE: http://ucalgary.ca/bnault

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