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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 steve.thompson@nottingham.ac.uk
Professor of Strategic Management



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
Publication Date May 15, 2014
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
APA6 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
DOI https://doi.org/10.1080/13571516.2014.912450
Keywords Internet; Contestability; Entry JEL classifications: D4, L1
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....cope&journalCode=cijb20
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