Real and Virtual Competition
Journal of Industrial Economics, Vol. 57, No. 2, pp. 319-342, 2009
24 Pages Posted: 20 May 2010 Last revised: 29 Oct 2016
Date Written: April 22, 2008
Abstract
Goods sold by electronic firms are not perfect substitutes for otherwise identical goods sold by their offline counterparts. Online purchases are associated with waiting costs, and they do not allow consumers to inspect the product prior to purchase. Visiting a conventional retailer, on the other hand, involves positive traveling costs. In this paper I extend the circular city model to include two types of firms, conventional and electronic. I show that under some parameter configurations, conventional stores actually raise their prices in response to entry of electronic firms. Moreover, economic welfare goes down.
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