TY - JOUR AU - Goldmanis,Maris AU - Hortacsu,Ali AU - Syverson,Chad AU - Emre,Onsel TI - E-commerce and the Market Structure of Retail Industries JF - National Bureau of Economic Research Working Paper Series VL - No. 14166 PY - 2008 Y2 - July 2008 UR - http://www.nber.org/papers/w14166 L1 - http://www.nber.org/papers/w14166.pdf N1 - Author contact info: Maris Goldmanis Department of Economics 1126 E. 59th St. Chicago, IL 60637 E-Mail: mgoldma@uchicago.edu Ali Hortacsu Department of Economics University of Chicago 1126 East 59th Street Chicago, IL 60637 Tel: 773/702-5841 E-Mail: hortacsu@uchicago.edu Chad Syverson University of Chicago Booth School of Business 5807 S. Woodlawn Ave. Chicago, IL 60637 Tel: 773/702-7815 Fax: 773/702-8490 E-Mail: chad.syverson@chicagobooth.edu Onsel Emre Department of Economics 1126 E. 59th St. Chicago, IL 60637 E-Mail: emre@uchicago.edu AB - While a fast-growing body of research has looked at how the advent and diffusion of e-commerce has affected prices, much less work has investigated e-commerce's impact on the number and type of producers operating in an industry. This paper theoretically and empirically takes up the question of which businesses most benefit and most suffer as consumers switch to purchasing products online. We specify a general industry model involving consumers with differing search costs buying products from heterogeneous-type producers. We interpret e-commerce as having reduced consumers' search costs. We show how such reductions reallocate market shares from an industry's low-type producers to its high-type businesses. We test the model using U.S. data for three industries in which e-commerce has arguably decreased consumers' search costs considerably: travel agencies, bookstores, and new auto dealers. Each industry exhibits the market share shifts predicted by the model. Interestingly, while the industries experienced similar changes, the specific mechanisms through which e-commerce induced them differed. For bookstores and auto dealers, industry-wide declines in small outlets reflected market-specific impacts, evidenced by the fact that more small-store exit occurred in local markets where consumers' use of e-commerce channels grew fastest. For travel agencies, on the other hand, the shifts reflected aggregate changes driven by airlines cutting agent commissions as consumers started buying tickets online. ER -