Market Structure and Market Performance in E-Commerce

Posted by D. Daniel Sokol

Franz Hackl, University of Linz - Department of Economics, Michael Kummer, Johannes Keppler University, Rudolf Winter-Ebmer, University of Linz - Department of Economics, Institute for Advanced Studies (IHS) - Department of Economics & Finance, Centre for Economic Policy Research (CEPR), Institute for the Study of Labor (IZA), and Christine Zulehner, University of Vienna - Faculty of Business, Economics, and Statistics, Austrian Institute of Economic Research (WIFO) have a new paper on Market Structure and Market Performance in E-Commerce.

ABSTRACT: We investigate the effect of market structure on market performance in the market for consumer electronics. We exploit product life cycle information to build an instrumental variable for the number of firms in a market, a variable which hitherto had to be treated as exogenous in comparable studies on seller-behavior in e-commerce. We combine data from Austria's largest online site for price comparisons with retail data on wholesale prices provided by a major hardware producer for consumer electronics. We observe input prices of firms, and all their moves in the entry and the pricing game. Using this information for 70 digital cameras, we generate instrumental variables based on the shops' entry decisions in the past. We find that instrumenting is particularly important for estimating the effect of competition on the markup of the price leader.