We study the impact of the Internet on small, boutique firms selling presence goods or services – goods or services which must be consumed in a specific location. These firms have recently begun to engage in electronic commerce, enabled by technologies and services such as location-aware advertising and local daily deal sites. Previous research regarding the interplay of local and Internet commerce has focused on commodity goods, differences in transportation costs, and competition between pure online and brick-and-mortar vendors. We combine novel datasets from Groupon, Flickr, Google Maps, and UrbanSpoon to examine the effects of lowered search costs through brick-and-mortar vendors’ participation in electronic markets on local competition among restaurants and spas. We find that as vendors in a particular locality participate in electronic markets, local competition increases and other vendors join the electronic market in response. This effect diminishes with distance. Further, we find that the impact on competition is moderated by the amount of horizontal and vertical differentiation in a local area, with those areas having lower differentiation experiencing a higher competitive effect. Our findings validate analytical results in existing literature, and have implications for firms and daily deal platforms.
Session 4A, paper 3