The Emerging Landscape for Retail E-Commerce

Abstract

Online retail sales of goods and services are projected to grow from $45 billion in 2000, or 1.5% of total retail sales, to $155 billion in 2003, and to $269 billion in 2005, or 7.8% of total retail sales projected for that year (Dykema 2000). In addition to this substantial growth in online sales, consumers increasingly rely on information collected online to research a lot of purchases that are concluded over traditional "bricks and mortar" channels, especially for high value durable goods, such as electronics and automobiles. Such purchases influenced by the Internet are estimated to grow from $13 billion in 2000 to $146 billion in 2003 and $378 billion in 2005 (Dykema 2000), or 10.8% of projected retail sales. This would bring the total retail sales affected by e-commerce in 2005 to $647 billion, or 18.5% of total retail sales. Retail e-commerce is evolving to encompass a wide variety of goods and services. Leisure travel will be the leading category in 2000 with 27.2% of online sales, followed by books, music, videos and software (14.9%), computers and electronics (13.6%) and apparel (11.3%). By 2005, consumables (food, beverages, supplies, health and beauty aids, pet supplies, etc) are projected to amount to 18% of online retail sales, followed by apparel (16%), computers and electronics (12.4%), automobiles (12.2%) and leisure travel (12.1%), while the share of books, music, videos and software will fall to 9.6% (Dykema 2000). Given the growing role that the e-commerce will play in retail markets, this paper focuses on how the Internet is affecting these markets, and how the resulting "digital markets" compare to conventional markets in terms of search costs, patterns of competition, mechanisms for price discovery, and types of intermediation.