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

Haynes, Michelle; Thompson, Steve

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.

Citation

Haynes, M., & Thompson, S. (2014). Hit and Run or Sit and Wait? Contestability Revisited in a Price-Comparison Site-Mediated Market. International Journal of the Economics of Business, 21(2), 165-190. doi:10.1080/13571516.2014.912450

• 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