The Competitiveness of On-Line vis-a-vis Conventional Retailing: A Preliminary Study

Previous research has directly studied whether on-line retailing is more competitive than conventional retail markets. The evidence from books and music CDs is mixed. Here, I use an indirect approach to compare the competitiveness of on-line with conventional markets. Focusing on the retail market for books, I identify a peculiarity in the pricing of bestsellers relative to other titles. Supposing that competitive barriers are lower in on-line retailing, I analyze how the lower barriers would affect the relative pricing of bestsellers. The empirical data indicates that on-line retailing is more competitive than conventional retailing. * Dean and Professor, School of Computing, National University of Singapore, 3 Science Drive 2, Singapore 117543, Singapore. Tel: (65) 874-6807, http://www.comp.nus.edu.sg/~ipng/. I gratefully acknowledge discussions with Tom Lee and Haim Mendelson and the research assistance of Cui Yan and Gerald Painkras.