Competitive equilibrium in e-commerce: Pricing and outsourcing

The success of firms engaged in e-commerce depends on their ability to understand and exploit the dynamics of the market. One component of this is the ability to extract maximum profit and minimize costs in the face of the harsh competition that the internet provides. We present a general framework for modeling the competitive equilibrium across two firms, or across a firm and the market as a whole. Within this framework, we study pricing choices and analyze the decision to outsource IT capability. Our framework is novel in that it allows for any number of distributions on usage levels, price–QoS tradeoffs, and price and cost structures.