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
Date Written: January 16, 2006
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
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