Competition with Online and Offline Demands considering Logistics Costs Based on the Hotelling Model

Abstract

Through popular information technologies (e.g., call centers, web portal, ecommerce and social media, etc.), traditional shops change their functions for servicing online demands while still providing offline sales and services, which expand the market and the service capacity. In the Hotelling model that formulates the demand effect by considering just offline demand, the shops in a line city will locate at the center as a the result of competition by games. The online demands are met by the delivery logistics services provided by the shops with additional cost; the consumers’ waiting time after their orders also affects their choices for shops. The main purpose is to study the effects of the following aspects on the shops’ location competition: two logistics costs (consumers’ travelling cost for offline demands and the shops’ delivery logistics cost for online demands), the consumers’ waiting cost for online orders, and the ratios of online demands to the whole demands. Therefore, this study primarily contributes to the literature on the formulation of these aspects by extending the Hotelling model. These features and effects are demonstrated by experiments using the extended Hotelling models.

Urban Distribution Centres and Competition Among Logistics Providers: A Hotelling Approach

“…In our paper, following Hu et al (2014) and Nagurney et al (2014), we …rst depart from the traditional literature by assuming that the product 'characteristic'which might di¤erentiate LSPs is represented by delivery times. In terms of industry-speci…c variables, time-based competition is relevant to services associated with information, such as on-line content distribution, on-line commerce, web hosting (Blackburn, 2012;So, 2000).…”

“…In this case, in a setting in which …rms make their strategic decisions sequentially by selecting service levels and lead times, the authors show that the competition results in higher service levels, prices, and demand volumes. Hu et al (2014) consider how lengthy could be the delivery of products to study the interaction between on-line and o¤-line distributions in the logistics competition. Whereas o¤-line competition implies transportation costs (customers have to travel to purchase goods), instead on-line competition entails penalty costs (customers receive goods delivered and thus are sensitive to waiting times).…”