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Competition between heterogenous online and offline firms

Author

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  • Xiwei,Zhu
  • Gokan,Toshitaka

Abstract

We propose a model with heterogenous online and offline firms in an industry. Online firms need no additional fixed costs to export goods; however, offline firms do. Transaction costs between consumers and sellers are needed only in the online market. Consumers expect the quality of products in the online market but know the quality of products sold by offline firms. We find that low-quality firms with moderate productivity choose to be online firms. We show that a unique equilibrium value of the expected quality exists in the online market if transaction costs are sufficiently low, and if transport costs are sufficiently high. Furthermore, numerical analysis shows that online technology improves welfare, and transaction and transport costs have opposite impacts on welfare.

Suggested Citation

  • Xiwei,Zhu & Gokan,Toshitaka, 2023. "Competition between heterogenous online and offline firms," IDE Discussion Papers 888, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    • Handle: RePEc:jet:dpaper:dpaper888
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    References listed on IDEAS

    as
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    4. Ali Hortaçsu & F. Asís Martínez-Jerez & Jason Douglas, 2009. "The Geography of Trade in Online Transactions: Evidence from eBay and MercadoLibre," American Economic Journal: Microeconomics, American Economic Association, vol. 1(1), pages 53-74, February.
    5. Johnson, Robert C., 2012. "Trade and prices with heterogeneous firms," Journal of International Economics, Elsevier, vol. 86(1), pages 43-56.
    6. repec:hal:spmain:info:hdl:2441/10191 is not listed on IDEAS
    7. Andreas Lendle & Marcelo Olarreaga & Simon Schropp & Pierre‐Louis Vézina, 2016. "There Goes Gravity: eBay and the Death of Distance," Economic Journal, Royal Economic Society, vol. 126(591), pages 406-441, March.
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    10. J. V. Henderson & J. F. Thisse (ed.), 2004. "Handbook of Regional and Urban Economics," Handbook of Regional and Urban Economics, Elsevier, edition 1, volume 4, number 4.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Heterogenous firms|online|offline;

    JEL classification:

    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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