E-Commerce Growth and the Changing Structure of the Retail Sales Industry

Abstract

Recent studies of the growth in e-commerce retail sales examine mainly supply side factors, such as the application of information technology, low transaction costs etc. The author uses an empirical model that provides evidence of significant demand side factors which also help explain structural changes in the industry. Based on quarterly data from 1999 Q4 to 2010 Q3, the econometric results indicate an e-commerce sales elasticity of 9.36 and a non-e-commerce sales elasticity of (2.63), indicating a more dynamic and competitive internet market. Evidence of more demand stability for e-commerce sales is also provided. The policy implications for growing e-commerce sales necessitate strategic policies for planned expenditures on R&D and investments in information technology as well as the efficient use of store space by traditional retailers. The use of income elasticity differential for analyzing competition between these two sectors provides an alternative method to price differential used in previous studies.