Market structure and market performance in E-commerce

- Analysis of market structure on markups of consumer electronics.
- Usage of data on the Austrian online market and data on wholesale prices.
- Results support search theoretic models but not monopolistic competition.
- One more firm reduces markups by as much as competition during 3 weeks.
- Substitutability between newly innovated and old expiring technologies.

We analyze the interaction between market structure and market performance and how it varies over the product cycle. To account for the potential endogeneity in this relation, we use an instrumental variable approach. We combine data from the largest Austrian online market for price comparisons with retail data on wholesale prices provided by a major hardware producer for consumer electronics. Our results show that instrumenting is important for estimating the empirical effect of competition on the markup of the price leader. One more firm in the market is associated with a reduction of the price leader׳s markup which is equivalent to competition between existing firms for an additional 3 weeks in the product life cycle. Our results support search theoretic models and contradict models of monopolistic competition. Moreover our results support the existence of price dynamics over the product cycle. They also highlight the substitutability between newly innovated and old expiring technologies and how it varies with respect to competitors׳ and own brand innovations.