Prices, Locations and Welfare When an Online Retailer Competes with Heterogeneous Brick‐and‐Mortar Retailers

Abstract

This study proposes a novel spatial model in which an online retailer competes with heterogeneous brick‐and‐mortar retailers. Consumers are assumed to be non‐uniformly distributed along an urban‐rural line, and online transactions provide savings in transportation costs at the expense of distaste costs. Among other results, we show that the surviving brick‐and‐mortar retailers eventually move toward densely populated (urban) areas after the entry of the online retailer. Consumer welfare, the policy of not taxing online business, and the socially optimal number of retailers are also analyzed.

Location-Price Equilibria when Traditional Retailers Compete Against an Online Retailer

“…When z is quite high relative to t , the online price is expected to be lower: When the online retailer has a relative competitive disadvantage over the traditional retailers, it is more likely that it sets a lower price to attract consumers, while the opposite is true when it has a relative competitive advantage (for a similar argument, see, for example, Smith et al, 2000 ). Note that a similar result is also found in Guo and Lai ( 2017 ). 19…”

“…Our result can be compared with Guo and Lai ( 2017 ). In Guo and Lai ( 2017 ), as a consequence of the entry of an online retailer, the physical retailers move toward more densely populated segments.…”

“…Our result can be compared with Guo and Lai ( 2017 ). In Guo and Lai ( 2017 ), as a consequence of the entry of an online retailer, the physical retailers move toward more densely populated segments. In our framework, where there is a uniform distribution of consumers along the linear market, the existence of an online retailer determines an intermediate equilibrium distance between the traditional retailers.…”

Szimultán Hotelling-modell Cobb–Douglas-hasznosságfüggvénnyel

“…Például az e-kereskedelem térnyerésével új szempontok váltak fontossá, megjelentek a webáruházak mint speciális boltok. ezért egyre gyakoribbak a webáruházak viselkedését vizsgáló modellek, mint Lijesen [2013], Kelemen [2017] vagy Guo-Lai [2017]. a szakirodalom fejlődésével a tanulmányok a háztartásokat továbbra is csak a rezervációs árukkal ragadták meg.…”

Price and Quality Decisions in Heterogeneous Markets

“…This assumption allows us to focus on the price and quality levels of the two stores without enforcing limiting assumptions on the distributions of consumers. [37] analyze the location and price of brick-and-mortar retailers in a market that consumers are non-uniformly distributed and can purchase the product from an Online retailer at the cost of a mismatch (for example a mismatch on size or color). However, they consider a homogeneous product with respect to quality and a market consisting of consumers that all have the same willingness to pay for that product.…”