Internet use, competition, and geographical rescoping in Yellow Pages advertising
•Diffusion of Internet provides a competitive force that leads to exit of offline competitors and decrease in offline prices in the longâterm.
•Decrease in prices is attenuated by increasing market concentration as firms exit.
•Remaining firms respond to increased Internet competition by repositioning their products, thereby moderating the decrease in prices.
This paper examines the effect of Internet penetration on competition and prices in the market for Yellow Pages advertising. We find that the diffusion of the Internet is associated with a decrease in the number of competitors and average prices for printed advertisements in the long-run. However, the decrease in prices is attenuated both by increasing market concentration as firms exit and by geographic rescoping as remaining firms reposition their products.