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Hit and Run or Sit and Wait? Contestability Revisited in a Price-Comparison Site-Mediated Market

Haynes, Michelle; Thompson, Steve

Authors

Michelle Haynes

Steve Thompson



Abstract

The price-comparison site, with its (near-)zero sunk costs of entry, would appear to approximate the " almost perfectly contestable market " envisaged by the contestability theorists where " hit-and-run " entry was conjectured to constrain sellers to zero-profit outcomes. We investigate hit and run using a unique unbalanced panel of 295 digital-camera markets mediated by NexTag.com. We find, however, in line with Farrell (1986a)'s prediction, a bifurcation of strategies with low reputation/smaller participants favouring a hit-and-run strategy involving lower entry prices and shorter forays into the market than their high reputation/larger rivals. Furthermore, the former entrants induce a much larger price response from low-reputation incumbents, reflecting the more intense rivalry for the price-sensitive consumers willing to eschew retailer reputations.

Journal Article Type Article
Acceptance Date May 4, 2014
Online Publication Date May 15, 2014
Publication Date May 15, 2014
Deposit Date Mar 4, 2019
Journal International Journal of the Economics of Business
Print ISSN 1357-1516
Electronic ISSN 1466-1829
Publisher Taylor & Francis (Routledge)
Peer Reviewed Peer Reviewed
Volume 21
Issue 2
Pages 165-190
DOI https://doi.org/10.1080/13571516.2014.912450
Keywords Internet; Contestability; Entry JEL classifications: D4, L1
Public URL https://nottingham-repository.worktribe.com/output/1604716
Publisher URL https://www.tandfonline.com/doi/abs/10.1080/13571516.2014.912450
Additional Information Peer Review Statement: The publishing and review policy for this title is described in its Aims & Scope.; Aim & Scope: http://www.tandfonline.com/action/journalInformation?show=aimsScope&journalCode=cijb20


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