Competition in B2C eCommerce：Analytical Issues and Empirical Evidence.pdf

Competition in B2C eCommerce: Analytical Issues and Empirical Evidence Stefan W. Schmitz a and Michael Latzerb aResearch Unit for Institutional Change and European Integration, Austrian Academy of Sciences Postgasse 7/1/2, A-1010 Vienna, Austria Tel. +43 1 51581 454, Fax. . +43 1 51581 566, Email: stefan.schmitz@oeaw.ac.at bResearch Unit for Institutional Change and European Integration, Austrian Academy of Sciences Postgasse 7/1/2, A-1010 Vienna, Austria Tel. +43 1 51581 570, Fax. . +43 1 51581 566, Email: michael.latzer@oeaw.ac.at Abstract This paper questions the widely held view that B2C eCommerce markets are characterised by a high intensity of competition, using a mixture of theoretical arguments and empirical evidence. We discuss two hypothesis and survey empirical studies which test them. We argue that the goods sold in B2C eCommerce have to be interpreted as heterogeneous “composite goods”, that market transparency in B2C eCommerce is lower than widely assumed, and that high endogenous sunk costs limit the intensity of competition in B2C eCommerce. Keywords B2C eCommerce; Competition; Market Transparency; Endogenous Sunk Costs; Network Effects Introduction We will start with a summary of common arguments for a high intensity of competition. In section 2 we formulate testable hypothesis about the competitiveness of B2C eCommerce. We also discuss three limitations of these tests. In section 3 we present and interpret results of a large number of empirical studies on prices and price dispersion in B2C eCommerce. In section 4 we discuss the explanations for the findings of these empirical studies offered in the literature. In section 5 we emphasise additional arguments against a high intensity of competition. In the final section we draw our conclusions. Arguments for a High Intensity of Competition in B2C eCommerce “One of the major features of the Internet revolution is its potential to make the whole economic system, nationally and internationally, more comp