Hit-and-Run or Sit and Wait? Contestability Revisited in a Shopbot Mediated Market

The shopbot appears to approximate to the conditions in which the contestability theorists envisioned hit-and-run entry behavior. We explore this using a unique data set obtained from daily visits to Nextag.com for an unbalanced panel of 295 digital cameras. We find, however, evidence of seller heterogeneity with low reputation/smaller participants favoring a hit-and-run strategy involving lower entry prices and shorter forays into the market than their high reputation/larger rivals. Furthermore, the former entrants induce a much larger price response from low reputation incumbents reflecting the more intense rivalry for the price-sensitive consumers willing to eschew retailer reputations.