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Competition Between Offline and Online Retailers with Heterogeneous Customers

Author

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  • Stefano Colombo

    (Università Cattolica del Sacro Cuore)

  • Noriaki Matsushima

    (Osaka University)

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.

Suggested Citation

  • Stefano Colombo & Noriaki Matsushima, 2020. "Competition Between Offline and Online Retailers with Heterogeneous Customers," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 57(3), pages 647-664, November.
    • Handle: RePEc:kap:revind:v:57:y:2020:i:3:d:10.1007_s11151-019-09734-1
    DOI: 10.1007/s11151-019-09734-1
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    Cited by:

    1. Perlman, Yael, 2022. "Pricing decisions of online and offline retailers, each offering a competing benefit," Operations Research Perspectives, Elsevier, vol. 9(C).
    2. Stefano Colombo & Zemin Hou, 2021. "Location-Price Equilibria when Traditional Retailers Compete Against an Online Retailer," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 59(3), pages 483-502, November.
    3. Stefano Colombo & Noriaki Matsushima, 2020. "Competition Between Offline and Online Retailers with Heterogeneous Customers," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 57(3), pages 647-664, November.

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    More about this item

    Keywords

    E-commerce; Game theory; Horizontal differentiation; Vertical differentiation;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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