Electronic Markets and Geographic Competition among Small, Local Firms

Forthcoming, Information Systems Research

41 Pages Posted: 28 Feb 2017 Last revised: 27 Jun 2019

See all articles by Brent Kitchens

Brent Kitchens

University of Virginia - McIntire School of Commerce

Anuj Kumar

University of Florida - Warrington College of Business

Praveen Pathak

University of Florida

Date Written: February 23, 2017

Abstract

We study the impact of electronic markets on small, boutique firms selling presence goods or services – goods or services which must be consumed at the selling firm’s location. These firms have recently begun to compete on electronic markets by selling goods and services through local daily deal sites, such as Groupon and LivingSocial. Previous research has shown that electronic markets make transportation costs less relevant in determining competition among firms selling goods and services that can be consumed at the consumers’ location. However, consumer transportation costs to the firm’s location remain relevant for competition among those selling presence goods. Due to lack of data for such firms, it has been difficult to empirically examine the competition among them. We extract publicly available activity and spatial information from Groupon, LivingSocial, Google Maps, and Flickr to construct a unique panel dataset to study daily deals offered by restaurants and spa vendors in geographical clusters of concentration in 167 distinct cities. This dataset allows us to examine the effect of location on the competition vendors face in electronic markets. We find that as vendors in a particular geographical cluster participate in electronic markets, local competition increases and other vendors in that cluster join the electronic market and deepen discounts in response. However, vendors in other clusters in the same city remain relatively unaffected. We further analyze vendor ratings from Yelp and other infomediaries, to show that lesser known and low quality vendors utilize the advertising effect of electronic markets to increase their awareness among customers. We further test the moderating effect of horizontal and vertical differentiation among firms in geographical clusters on competition in electronic markets, using measures extracted from UrbanSpoon.com. We find that clusters having lower differentiation experience higher competitive effects of firms joining the electronic market. Our findings provide empirical validation of the analytical results in existing literature in an important and understudied context: competition among small businesses selling presence goods and services. Our results have implications for firms and electronic market platforms.

Keywords: Electronic Markets, Daily Deals, Groupon, Geographic Competition, Small Business

Suggested Citation

Kitchens, Brent and Kumar, Anuj and Pathak, Praveen, Electronic Markets and Geographic Competition among Small, Local Firms (February 23, 2017). Forthcoming, Information Systems Research, Available at SSRN: https://ssrn.com/abstract=2922583 or http://dx.doi.org/10.2139/ssrn.2922583

Brent Kitchens (Contact Author)

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States

Anuj Kumar

University of Florida - Warrington College of Business ( email )

337 STZ WARRINGTON COLLEGE OF BUSINESS
GAINESVILLE, FL 32611-0001
United States
3522730587 (Phone)

Praveen Pathak

University of Florida ( email )

PO Box 117165, 201 Stuzin Hall
Gainesville, FL 32610-0496
United States

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