Introduction

When electronic commerce started to grow, understanding the novelty the Internet brought to business economics became a major issue, considering relations with suppliers and clients as well as among competitors. “Bricks and mortar” firms operating in distribution had to decide whether or not to enter the Internet retailing channel, at what pace and whether to be with or without partners. This chapter focuses on the nature of competition within the online distribution channel once this channel becomes a significant way for firms to access customers. Although many questions under study also make sense for business-to-business (B-to-B) relationships, we will keep in mind the world of business-to-consumer (B-to-C) retailing, which although it still played a minor role in 2003, enjoyed a high growth rate and already accounted for a large share of sales in some sectors. We will put aside problems related to vertical relationships and competing distribution channels – our general objective is to contribute to the understanding of the differences induced on the structuring of markets between selling through physical stores and selling through web-sites. More precisely, we will modelize the forces driving aggregation of shops on the Internet.

When the business press or the economics and management literature deal with the new features of web retailing, “one to one” marketing opportunities on the sellers' side and exchange of information among potential buyers and their network effects (communities) seem to be the most significant factors that could change the rules of the competition game.