Small Firm Performance in Online Markets

Abstract

Firms which enter the online marketplace do so for a variety of reasons. The effects of the motive for entry on the ultimate success of entry, for both online and ‘blended’ firms, are largely unknown. 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 trivariate probit model with exogenous ‘reason for entry’ dummy variables, estimates of aftermarket business performance are obtained. The study finds that the entry goal materially affects subsequent performance: firms entering to expand their market size ordinarily succeed, but those entering to reduce costs are often disappointed. Blended firms enjoy no strong advantages over pure online entrants.