English, Article, Journal or magazine article edition: Sinking the Internet: Pricing, Sunk Costs, and Market Structure Online Howard Smith; Simon Latcovich

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Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Sinking the Internet: Pricing, Sunk Costs, and Market Structure Online
Author
  • Howard Smith
  • Simon Latcovich
Physical Description
  • preprint
Notes
  • This paper evaluates alternative strategic models of competition and market structure in online retailing, and makes comparisons with traditional retailing. Online consumers are less concerned than traditional consumers about spatial characteristics and more concerned about hidden quality characteristics. Online retailers rely more on advertising than traditional retailers do, to inform consumers and to signal hidden quality attributes. Price competition may be imperfect, because of vertical product differentiation, incomplete consumer awareness, and perfect information exchange between retailers. Advertising and revenue data for the online book market reveal that consumers respond to advertising rather than low prices. As the market increases, advertising costs escalate and there is no new entry. Advertising to sales ratios and market concentration ratios are much higher than for traditional retailers. Using price and demand information for individual books over a number of weeks, we find counter-cyclical and cross-sectional price variation inconsistent with perfect price competition.
  • advertising, books, e-commerce, endogenous sunk costs, Internet, market structure, price discrimination, price dispersion, retailing
  • RePEc:oxf:wpaper:036
Language
  • English
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