Immer mehr Menschen gehen beim Surfen im World Wide Web auf Einkaufstour. Dabei geben Preisvergleichsseiten oftmals hilfreiche Tipps, wo das gesuchte Produkt am günstigsten zu haben ist. Dass sich ein Vergleich lohnt, zeigt eine Studie des Zentrums für Europäische Wirtschaftsforschung (ZEW) Mannheim und der Universität Linz. Die Studie kommt zu dem Ergebnis, dass bereits zehn zusätzliche Anbieter des gleichen Produkts den Preisaufschlag des günstigsten Anbieters um 1,7 Prozentpunkte verringern

Hackl, Franz

Kummer, Michael E.

Winter-Ebmer, Rudolf

Zulehner, Christine

MAnnheim DOCument Server

ZEWpolicybrief
No. 2 | May 2013
Entry, Exit, and Pricing Strategies at Online 
Price-Comparison Sites: Do Price Markups 
Fall by Themselves, or Is Competition Crucial?
Research Question  
and Relevance
Essential Issues
The aim of this project is to investigate the competitive behaviour of e-commerce firms over the 
course of the product lifecycle for consumer electronics such as digital cameras, IT hardware, and 
smartphones. We combine data from Austria’s largest online price comparison site with retail data 
provided by an industry-specific price comparison site for consumer electronics. This aggregated 
database enables us to record firms’ input prices as well as to monitor the various moves each 
firm makes with regard to strategic market entry and pricing for hundreds of product markets. In-
sight into e-tailers’ market behaviour is key to understanding online markets, which are reaping 
an ever greater share of retail sales each year. Yet antitrust and regulatory authorities are also 
interested in knowing how many firms are needed to sustain competition within a market, for 
merger assessments focus in part on the expected relation between the number of firms in a giv-
en market and corresponding market outcomes, i.e. product price and quality. Clearly, questions 
related to competition and pricing are of central importance to society and the public, as a mini-
mum level of competition is needed to ensure sufficient supply of a product at reasonable prices.
v
By  A ss o c i a t e  P r o f .  D r .  F ra n z  H a ckl ,  U n i v e r s i t y  o f  L i n z  ( J K U ) ;  M i cha e l  Ku m m e r,  
Ce n t r e  f o r  E u r o p ea n  E co n o m i c  Re s ea r ch  ( Z E W ) ;  P r o f .  D r .  Ru d o l f  Wi n t e r - E b m e r,  
U n i v e r s i t y  o f  L i n z  ( J K U ) ;  P r o f .  D I  D r .  C h r is t i n e  Zu l e h n e r,  U n i v e r s i t y  o f  L i n z  ( J K U ) 
Our research attempts to understand what factors influence a firm’s decision to enter the market at a 
particular point in time. When devising a listing strategy, e-tailers must choose to either list the entire 
available product line from the start or slowly and carefully select which items to roll out and when. 
A difference in strategy typically results in a difference in markups. Analysis of the link between mar-
ket structure and market performance is crucial to the study of industrial organization. Moreover, an 
understanding of factors that influence retailers’ markup decisions is key to a further understanding 
of the behaviour of online markets, which year after year continue to reap an ever greater share of 
retail sales. Our findings reveal, first, that the lifecycle of an online product is rather short, typically 
less than one year; and second, that the number of firms competing to offer a product significantly 
affects the markup in price for that product. Many suppliers will enter the market only after the suc-
cess of a product has been established, thus driving down markups and increasing consumer benefit. 
This is a sign of healthy online competition and ensures that surplus is transferred to the consumer. 
Key Messages
Research Question and Relevance
Our research objectives narrow in on two particular issues. The first has to do with marketplace 
entry/exit decision-making, and the second then considers the resulting market structure over the 
product lifecycle. Whereas our analysis of entry/exit strategies, including their determinants and 
profitability, focuses on decisions made at the level of an individual firm, our analysis of market 
structure and prices takes place at the market level. 
Our research attempts to understand why shops make the timing decisions they do with respect to 
entering and exiting the market. When devising a listing strategy, e-tailers face a fundamental trade-
off: immediate listing of all products comes with the advantage of being a first-mover in top-selling 
products; this advantage may, however, come at the cost and therefore the risk of handling a highly 
diversified and more expensive portfolio. Hence, some shops might prefer to watch and wait for cer-
tain market signals, and then only later choose to enter more promising markets.
Furthermore, we investigate what impact the number of sellers has on price and price dispersion. 
An awareness of the impact that market structure exerts on price setting and price dispersion helps 
us to evaluate the applicability of conflicting economic theories. The novelty of our research is 
two-fold. First, considering the rapidly fluctuating appearance and disappearance of firms in the 
e-tail market, this shortened lifespan allows us a more comprehensive analysis of the impact of 
market structure over time, thus resulting in critical insight into market dynamics. Second, given 
that the order of entry into the market is clearly laid out in the listing decisions e-tailers make, 
we are able to exploit this obvious structure in order to elucidate a straightforward instrumental 
variable strategy designed to estimate the impact of market structure on performance (prices, 
dispersion, etc.). In all markets, but in the e-tail market in particular, it is important to treat mar-
ket structure as endogenous: because entry into the market and exit from it are relatively simple 
and low-cost, e-tailers are able to adapt quite easily to changing circumstances simply by listing 
a particular product at a particular time. Thanks to the long-term data available at www.geizhals.
at, Austria’s largest price comparison site, we can examine markets for brand-name products.
Our aim is to better understand the role of market structure – i.e., the number of firms in a given 
market, the size of each firm, and the products each of them offers – in determining the extent of 
market competition and market performance.
Antitrust and regulatory authorities are particularly interested in knowing how many firms must 
exist in a market in order to sustain healthy competition since at the core of merger assessments 
lies the expected relation between the number of firms competing in the market and market out-
comes, such as product quality and price. These considerations are of central importance to the 
public as well, given that a minimum level of competition ensures both: sufficient supply of the 
product and reasonable prices for the consumer.
Methods and Database 
Our project team has access to an extensive database maintained by Austria’s largest price com-
parison site. Our aim is to analyze the strategic interaction of online shops and how this interac-
tion relates to a given stage in a product’s lifecycle – or, in other words, the dynamics of strategic 
interaction among firms from the time of a product’s emergence on the market to the point of its 
disappearance. The www.geizhals.at database enables us to record firms’ input prices as well as to 
monitor the various moves each firm makes in the market entry and the pricing game for hundreds 
of product markets. The data is directly accessible via the company’s web servers and is thus made 
available in unprecedented detail: Prior to our analysis, we tracked more than 320 million price of-
ferings for more than 370,000 products from a total of 3,700 sellers over the course of more than 
Firm Strategies and 
Market Structure
Timing Decisions
Impacts on  
Price Setting
Healthy Competition
Extensive Database
2 | ZEWpolicybrief ZEWpolicybrief | 3
v
 policy brief ZEW policy 
three years. These offerings include information on product availability and shipping charges as 
well as customer reviews of quality and service on a 5-point scale. Approximately 100 million cus-
tomer clicks were tallied. 
Furthermore, having been provided with additional information directly from a major manufacturer, 
we were in a rather unique position to merge these two data sets to get a detailed view of the retail-
ers’ cost structure. When taken together with the information on clicks1 from www.geizhals.at, we 
were able to approximate e-tailers’ input/output cost margins with unprecedented accuracy. 
The primary advantage to studying trends in e-commerce is the easy availability of large amounts of 
data on retail prices at very little cost to the researcher. Moreover, it is generally possible to observe all 
prices and changes in the price set that are made by participating firms and to reconstruct the series of 
reactions the firms are making in response to one 
another.  Beyond even this, data on e-commerce 
is available for a great variety of markets ranging 
from books to consumer electronics. However, 
the key drawback researchers face is that they 
cannot always observe the entire marketplace, 
rather only a segment of it. Often they are unable 
to assess whether or not a posted price has also 
resulted in an actual consumer transaction.
This paper represents a significant contribu-
tion to the study of e-commerce in that it of-
fers a novel way of accounting for the fact that 
it is extremely easy for online shops to add 
and remove items from their product portfolio. 
This phenomenon tends to complicate analy-
sis, since the number of shops offering a prod-
uct typically corresponds to the attractiveness, 
which is to say the saleability of that product; 
thus the number of shops offering a product will 
depend precisely on the variables we seek to 
explain. This situation is an example of the “en-
dogeneity problem”, which can pose a threat 
to the validity of empirical estimates. We have 
chosen to deal with this issue by taking an historical look at how many shops typically listed their 
earlier products at a particular point in the product lifecycle. These variables capture overarching 
factors in the listing decision (e.g. distribution patterns) that cannot so easily be changed and are 
therefore immune to issues such as whether an item is currently en vogue or not. Tracking a set of 
104 digital cameras, we illustrate our solution to the endogeneity problem. 
Research Results in Detail
We find that a firm’s markup over input price is significantly and strongly affected both by a very 
short product lifecycle, usually less than a year, as well as by the number of firms competing to 
sell that product. Ten additional competitors in the market will reduce the markup by the cheap-
est firm by an average of more than 1.5 percentage points. 
1  We observe “referral requests”, which are registered whenever a customer clicks on an offer and is referred to the 
shop’s website. From these we can also generate “Last Click Throughs” (henceforth LCT), which are usually more closely 
correlated to actual purchases.
Impact of Product  
Lifecycle and Number 
of Firms
2 | ZEWpolicybrief ZEWpolicybrief | 3
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 policy brief ZEW policy 
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A Typical Lifecycle in Retailing
Pricing Strategies and Number of Sellers Over the Lifecycle of a Single Product
The figure shows the lifecycle of a very long lasting (700 days) camera in our dataset. The yellow line 
shows the price of the median shop. 50 per cent of the shops asked a higher and 50 per cent asked a 
lower price. The red line shows the wholesale price and the brown line the price of the cheapest shop in 
the market. The wholesale price is close to 700 (Euro) when the camera was introduced for the first time 
and then gradually fell to just below 600 Euro after 300 days. The dark blue line shows the number of daily 
clicks that the camera received on geizhals.at. It typically fluctuated between 50 and 150 clicks with peaks 
above 200 (typically when the wholesale price was decreased). The light blue line, finally shows the num-
ber of shops in the market: For that camera the number increases to about hundred shops over the first 
days and then slowly increases to 150 after 400 days. The number of shops is reduced to merely 50  
between day 450 and 500 of the camera’s life, but it is hardly ever clicked after that point in time.
ZEW policy brief series
Publisher: Centre for European Economic Research (ZEW) Mannheim,  
L 7, 1 · 68161 Mannheim · P.O. Box 10 34 43 · 68034 Mannheim · Germany · Internet: www.zew.de · www.zew.eu 
President: Prof. Dr. Dr. h.c. mult. Wolfgang Franz · Business and Administration Director: Thomas Kohl
Editorial responsibility: Prof. Dr. Dr. h.c. mult. Wolfgang Franz
Quotes from the text: Sections of the text may be quoted in the original language without explicit permission provided that the 
source is acknowledged.  
© Zentrum für Europäische Wirtschaftsforschung GmbH (ZEW), Mannheim, 2012
, Mannheim
Clemens Fuest · Director of Business and A ministration: Thomas Kohl
Clemens Fuest
3
4 | ZEW policy brief ZEW policy brief | 4
v
This effect is felt most strongly within the first month that a product enters the market and then 
again at the end of the product lifecycle. When differentiating among effects of market structure 
over the full lifecycle of a product, we find a negative impact on markup throughout. This impact 
is especially pronounced in the beginning and the late phases of the lifecycle, though interest-
ingly, markups were found to be at their lowest in months 2 to 4, precisely when the number of 
competing firms seems to be the lesser determinant in decreasing price to the consumer. Our 
results refer to e-tailing associated with a price-comparison search engine with very narrowly de-
fined product parameters. In such a situation, consumers are very easily able to obtain informa-
tion about prices and seller reliability. Nevertheless, it takes a large number of sellers and a rela-
tively long period of time for markups to decrease substantially.
The price leader’s markup also diminishes over the lifecycle of the product. This trend allows us to 
compare the effect of the number of firms in competition with the effect of time on product markup. 
Should a consumer wait longer to purchase a product, the number of competing firms offering that 
product will generally increase; thus there is an advantage to waiting. All else remaining equal, should 
the consumer wait three additional weeks, she can expect to receive the same reduction in price that 
she might otherwise get by participating in a market with one additional competing firm.
Lastly, customer reviews have proven to be an important and valuable source of information with 
respect to the reliability of online shops. Thus, a guarantee of the accuracy and reliability of tools 
designed to measure and mark customer satisfaction can help to ensure the efficient function 
of online markets.
Advantage of Waiting
Project Profile
 ͮ Associate Prof. Dr. Franz Hackl (University of Linz, Department of Economics)
 ͮ  Michael Kummer (Centre for European Economic Research (ZEW), Information and  
Communication Technologies Research Group)
 ͮ Prof. Dr. Rudolf Winter-Ebmer (University of Linz, Department of Economics) 
 ͮ Prof. DI Dr. Christine Zulehner (University of Linz, Department of Economics)
Michael Kummer, E-mail: kummer@zew.de 
The research progam “Strengthening Efficiency and Competitiveness in the European Knowledge 
Economies (SEEK)” is funded by the German state of Baden-Württemberg.
Hackl, Franz, Michael Kummer, Rudolf Winter-Ebmer and Christine Zulehner (2011), Market 
Structure and Market Performance in E-Commerce, ZEW Discussion Paper No. 11-084, Mannheim.
http://seek.zew.eu/seek/projekte-2010/wettbewerbsstrategien-ueber-den-produktleben-
szyklus-markteintritt-austritt-und-preissetzung-auf-online-preisvergleichseiten.html
Research Team
Contact
Funding
Publications
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Entry, exit, and pricing strategies at online price-comparison sites : do price markups fall by themselves, or is competition crucial?

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Entry, exit, and pricing strategies at online price-comparison sites : do price markups fall by themselves, or is competition crucial?

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