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The shop around the corner in the Internet age

Author

Listed:
  • Jérôme FONCEL

    (Université de Lille 3, Gremars)

  • Marianne GUYOT

    (Université de Lille 3, Gremars)

  • Frédéric JOUNEAU - SION

    (Université de Lille 3, GREMARS and Université Catholique de Louvain, CORE)

Abstract

We study a spatial competition model which is a variant of the celebrated Hotelling (1929) framework. One of the firm is a brick-and-mortar one while the other is on-line. Both firms sell the same product except that (constant) marginal costs may differ. Consumers going to the shop around the corner face transportation costs according to their adress whereas on-line consumers bear a fix cost that may capture technological burden and risk premium. In the pricing Nash equilibria the “new economy” firm has smaller market shares eventhough it offers more attractive prices. For the on-line firm to become a leader, the cost difference must be large enough to offset the comparative disadvantage it face on the demand side. In the long run, increasing competition ultimately forces the local firm out of downtown. We argue that this effect may be related to some of the forecasts concerning the geographical impact of the development of remote access services.

Suggested Citation

  • Jérôme FONCEL & Marianne GUYOT & Frédéric JOUNEAU - SION, 2011. "The shop around the corner in the Internet age," Discussion Papers (REL - Recherches Economiques de Louvain) 2011025, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    • Handle: RePEc:ctl:louvre:2011025
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    File URL: http://sites.uclouvain.be/econ/DP/REL/2011025.pdf
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Stefano Colombo & Zemin Hou, 2019. "On spatial competition with quadratic transport costs and one online firm," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 63(1), pages 241-247, August.
    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. Emilie Dargaud & Frédéric Jouneau-Sion, 2019. "The good MOOC and the universities," Working Papers halshs-01996582, HAL.
    4. Emilie Dargaud & Frédéric Jouneau-Sion, 2019. "The good MOOC and the universities," Working Papers 1905, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    5. Wen-Chung Guo & Fu-Chuan Lai, 2017. "Prices, Locations and Welfare When an Online Retailer Competes with Heterogeneous Brick-and-Mortar Retailers," Journal of Industrial Economics, Wiley Blackwell, vol. 65(2), pages 439-468, June.
    6. Sun, Shuzhen & Liu, Tieming, 2023. "Pricing and sales-effort coordination facing free riding behaviors between a brick-and-mortar retailer and a platform store owned by the manufacturer," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 179(C).
    7. Emilie Dargaud & Fréedéeric Jouneau-Sion, 2020. "The good MOOC and the universities," Education Economics, Taylor & Francis Journals, vol. 28(5), pages 474-490, September.

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    More about this item

    Keywords

    spatial competition; economic geography; E-marketing;
    All these keywords.

    JEL classification:

    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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