We consider the spatial competition between two traditional physical (or offline) retailers and an Internet (or online) retailer where the efficiency of the latter differs from that of the former. We assume that consumers are heterogeneous across two dimensions: (1) the costs of traveling to either of the offline retailers; and (2) the costs of purchasing from the online retailer. Both dimensions depend on the spatial location of consumers and are independent of each other. We show that the online retailer maximizes its profit at an intermediate level of the consumer disutility of online purchase when its efficiency is low.
Colombo, S., Matsushima, N., Competition Between Offline and Online Retailers with Heterogeneous Customers, <<REVIEW OF INDUSTRIAL ORGANIZATION>>, 2020; 57 (3): 647-664. [doi:10.1007/s11151-019-09734-1] [http://hdl.handle.net/10807/163995]
Competition Between Offline and Online Retailers with Heterogeneous Customers
Colombo, Stefano;
2020
Abstract
We consider the spatial competition between two traditional physical (or offline) retailers and an Internet (or online) retailer where the efficiency of the latter differs from that of the former. We assume that consumers are heterogeneous across two dimensions: (1) the costs of traveling to either of the offline retailers; and (2) the costs of purchasing from the online retailer. Both dimensions depend on the spatial location of consumers and are independent of each other. We show that the online retailer maximizes its profit at an intermediate level of the consumer disutility of online purchase when its efficiency is low.
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