E-Commerce: Impact on Markets and Retailers

The internet is changing the way people do business. This article looks at how e-commerce has affected the market structures of several companies…...

Economists have theorized that e-commerce ought to lead to increased price competition, as it increases consumers' ability to gather information about products and prices.

E-Commerce effects the market structures of small businesses

Research by four economists at the University of Chicago has found that the growth of online shopping has also affected industry structure in two areas that have seen significant growth in e-commerce, bookshops and travel. Generally, larger firms have grown at the expense of smaller ones, as they are able to use economies of scale and offer lower prices. The lone exception to this pattern has been the very smallest category of bookseller, shops with between one and four employees, which appear to have withstood the trend.

 There has been less research attention directed toward such questions of which businesses benefit the most, and which suffer most, from e-commerce than that applied toward the implications for prices. Straight wisdom suggests that market structure impacts could be large; the rapid growth of online travel sites at the expense of local travel agencies is one soft-cited example.

E-commerce is playing an increasingly important role in many markets. The new technologies it brings affect not just prices but also other components of market structure, with differing effects across businesses. Those that are able to operate at low cost (and pass some of this cost advantage on to their customers) can gain market share and profitability, while higher-cost firms will be hurt, perhaps fatally. The research discussed here concerns a few industries, but similar shifts are likely to have occurred in other markets.

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