Ecommerce and market structure effects in theEuropean retail industry

Abstract: Fifteen or so years into what is said to be the game changer of our time there are many fields of science  focusing  their  attention  towards  the  online  market  in  attempts  to  describe  its implications for the traditional, offline markets. Where most of the literature on economics of ecommerce focus on pricing mechanisms and growth little attention has been directed towards more general market structure effects. This thesis adopts techniques, empirical and theoretical models  from  the  search  cost  and  market  structure  literature  in  order  to  examine  the relationships between ecommerce and offline market structures in the retail industry through regional employment and establishment data. The literature reviewed and used focus only on the US market whereas this thesis shifts the attention to the European regions. The results are convincing and in general corresponding to previous research results. As ecommerce usage increase and the consumer search costs thereby gets lower inefficient firms drop out of the market resulting in a decline in local establishment counts. The opposite effect is seen for pure online retailing establishments that thrive in the presence of local ecommerce usage. The effect of   ecommerce  on  traditional  offline  establishments  seems  to  be  aggregated  phenomena whereas  the  effect  on  pure  online  firms  seems  to  be  of  a  more  local  nature.  Focus  of policymakers and company management therefore might consider looking at the two effects in their respective aggregation level to best sort out how to react in the presence of increased competition from ecommerce usage.