Multichannel design and pricing in vertically differentiated expert service markets

Abstract

Expert service providers, such as lawyers, physicians, and designers, are considering whether to employ the multichannel, which consists of online and offline channels. Multichannel strategy arises two contrary effects: the cannibalization effect and the complementary effect. This paper models expert service markets where the seller (two sellers) considers whether and how to optimally design the multichannel service. We find that the multichannel strategy dominates the traditional channel in the monopoly context; however, multichannel may be overwhelmed by the traditional channel in the vertically differentiated market. Moreover, the low‐quality seller may provide a higher‐capability online channel than the high‐quality seller.