Competition between blended traditional and virtual sellers

Abstract

Competition in many electronic markets increasingly involves blended ‘bricks and clicks’ firms and virtual firms lacking any presence offline. Firms which enter the online marketplace do so for a variety of reasons, including experimentation, foreclosing rivals, responding to customer requests, and so on. This study utilises a unique data set of small Australian firms, and examines the relationship between the strategic motivation for entry and the actual results of entry. Utilising a bivariate ordered probit model with endogenous dummy variables, the endogeneity of firm strategic goals and implicit estimates of the parameters of the post-entry business environment is accommodated. The study finds that the goal of entry materially affects subsequent performance: firms entering to expand their market size ordinarily succeed, but those entering to reduce costs do not. Blended firms enjoy no strong advantages over pure online entrants.