The Emerging Internet Retailing Market as a Nested Diffusion Process

In this essay, we analyse the diffusion of the Internet and online retailing within the standard framework of diffusion to heterogeneous consumers. We show that many conditions favour the diffusion of Internet retailing in the short run, but not in the long run. We argue that the standard framework needs to account for the "nested" diffusion process. That is, the diffusion of online retailing depends on the diffusion of many other goods, whose underlying diffusion process is also changing. An understanding of these interrelated processes leads to a richer understanding of the prospects for the long-term diffusion of online retailing.