Internet intensifies rivalry among competitors brings

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internet intensifies rivalry among competitors, brings more companies into competition, and migrates competition to price (all in line with economic view of more efficient market) • some trends provoked by Internet are positive (expands market size, improve proves product positions relative to traditional substitutes thus leading to less competitive) most trends are negative (reduced entry barriers, increased rivalry among competitors more competitive) WINNER-TAKE-ALL THEORY WTA Theory: fast communication makes customers converge in tastes and buying habits, small advantage over competitors is rewarded with large market share; Internet helps strengthen competitive positions of selected group of winners and reduce competition power of small/weak firms
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Zoe Zwiebelmann Maastricht University IM Session 2 • theory also used to explain highly skewed profitability of Internet firms (Noe and Parker) + long-tail theory by showing that there is an increase in concentration at end of distribution curve (Elberse) • network effects & C2C communications support logic of converged customer tastes and habits 3. HYPOTHESES H0: The change of industry competition is not associated with Internet use. H1: The change of industry competition is positively associated with Internet use. H2: The change of industry competition is negatively associated with Internet use. + sector heterogeneity analysis effect of Internet use on industry change differ between industries 4. METHODOLOGY 4.1 MODEL FORMULATION • cross-sectional regressions to examine relationship between Internet use and changes in industry competition from 1997 to 2010 (in year 1997 industries began adoption Internet technologies) • repetition of study for periods 1997-2006 and 1997-2011 to confirm results 4.2 MEASURE OF CHANGE IN INDUSTRY COMPETITION HHI = INDUSTRY CONCENTRATION RATIO
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