IT Investment Strategy of B2B E-Commerce Website with Sequential Entry

In the competitive market of B2B e-commerce website, as customer switching cost and network externality could prevent customers to switch to later entrant, the earlier entrant has the advantage to build and retain its market share. However, the declining cost of information technology (IT) over time provides the later entrant a cost advantage. In order to maintain competitive advantage, what should the earlier and later entrant’s investment strategies be in the presence of customer switching costs, network externalities, and declining IT cost? To analyze this question, considering these three factors, the paper develops IT investment strategy model of a duopoly with sequential entry and discusses the impact of these three factors on IT investment strategy. The results show that, with the declining IT cost, the early entrant may increase its investment in quality, assume an aggressive investment strategy when switching cost is high, otherwise, the later entrant may increase its investment in quality, assume an aggressive investment strategy, and could offer a higher-quality system and capture a higher market share when switching cost is low. With the increase in network externality intensity, the early entrant may increase its investment in quality, assume an aggressive investment strategy, and the later entrant may decrease its investment in quality, assume a defensive investment strategy.