Internet channel entry: Retail coverage and entry cost advantage

Zhuo Cheng, Barrie R. Nault

Research output: Journal article publicationJournal articleAcademic researchpeer-review

13 Citations (Scopus)

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 entry costs are equal, one of the existing retailers enters the Internet channel 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.
Original languageEnglish
Pages (from-to)111-132
Number of pages22
JournalInformation Technology and Management
Volume8
Issue number2
DOIs
Publication statusPublished - 1 Jun 2007

Keywords

  • B2C electronic commerce
  • Cost advantage
  • Market entry
  • Preemption incentive
  • Retail pricing
  • Stand-alone incentive
  • Timing game

ASJC Scopus subject areas

  • Information Systems
  • Business, Management and Accounting (miscellaneous)
  • Communication

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