Why Competition from a Multi-Channel E-Tailer Does Not Always Benefit Consumers

Decision Sciences, 42, 1 (February 2011), 69-91

31 Pages Posted: 28 Aug 2016

See all articles by Patrick I. Jeffers

Patrick I. Jeffers

Iowa State University - College of Business

Barrie R. Nault

University of Calgary - Haskayne School of Business

Date Written: January 1, 2011

Abstract

Empirical studies have delivered mixed conclusions on whether the widely acclaimed assertions of lower electronic retail (e-tail) prices are true and to what extent these prices impact conventional retail prices, profits, and consumer welfare. For goods that require little in-person pre- or postsales support such as CDs, DVDs, and books, we extend Balasubramanian’s e-tailer-in-the-center, spatial, circular market model to examine the impact of a multichannel e-tailer’s presence on retailers’ decisions to relocate, on retail prices and profits, and consumer welfare. We demonstrate several counter-intuitive results. For example, when the disutility of buying online and shipping costs are relatively low, retailers are better off by not relocating in response to an e-tailer’s entry into the retail channel. In addition, such an entry — a multichannel strategy — may lead to increased retail prices and increased profits across the industry. Finally, consumers can be better off with less channel competition. The underlying message is that inferences regarding prices, profits, and consumer welfare critically depend on specifications of the good, disutility and shipping costs versus transportation costs (or more generally, positioning), and competition.

Keywords: Channels, E-Commerce, Pricing

Suggested Citation

Jeffers, Patrick I. and Nault, Barrie R., Why Competition from a Multi-Channel E-Tailer Does Not Always Benefit Consumers (January 1, 2011). Decision Sciences, 42, 1 (February 2011), 69-91. Available at SSRN: https://ssrn.com/abstract=2608558

Patrick I. Jeffers

Iowa State University - College of Business ( email )

Ames, IA 50011-2063
United States

Barrie R. Nault (Contact Author)

University of Calgary - Haskayne School of Business ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada

HOME PAGE: http://ucalgary.ca/bnault

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