Competition between offline and online retailers with heterogeneous customers

Stefano Colombo, Noriaki Matsushima

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 consumers are heterogeneous across two dimensions: (i) the costs of traveling to either of the offline retailers and (ii) 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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Year of publication:	May 2019
Authors:	Colombo, Stefano ; Matsushima, Noriaki
Publisher:	Osaka, Japan : The Institute of Social and Economic Research, Osaka University
Subject:	e-commerce \| game theory \| horizontal differentiation \| vertical differentiation \| Spieltheorie \| Game theory \| Online-Handel \| Online retailing \| Electronic Commerce \| E-commerce \| Produktdifferenzierung \| Product differentiation \| Duopol \| Duopoly \| Einzelhandel \| Retail trade \| Preiswettbewerb \| Price competition \| Konsumentenverhalten \| Consumer behaviour \| Wettbewerb \| Competition