Expert competition and the internet

Abstract

The Internet has become a channel for experts offering their services. We investigate the optimal online channel adoption strategy of a high-quality expert with a brick-and-mortar presence in the face of potential entry by an expert with just an online presence. We find that the high-quality expert does not have the incentive to adopt the online channel unless new entry is imminent. If the incumbent high-quality expert cannot offer a sufficiently high-quality online service, the incumbent expert accommodates entry and provides only a face-to-face service. However, a satisfactory level of online quality allows the incumbent expert to deter entry and to limit what would otherwise be a more intense competition. This paper thus establishes an entry deterrence role for the adoption of the online channel in expert markets. In addition, the results partially explain the reasons behind the quick adoption of the online channel in tax preparation services and physicians’ reluctance to offer online consultations.