Competition Between Offline and Online Retailers with Heterogeneous Customers

ISER DP No. 1056, May 2019

51 Pages Posted: 13 Jun 2019 Last revised: 8 Aug 2019

See all articles by Stefano Colombo

Stefano Colombo

Catholic University of the Sacred Heart of Milan

Noriaki Matsushima

Osaka University - Institute of Social and Economic Research (ISER)

Date Written: May 30, 2019

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 consumers are heterogeneous across two dimensions: (i) the costs of traveling to either of the offline retailers and (ii) 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.

Keywords: e-commerce, game theory, horizontal differentiation, vertical differentiation

JEL Classification: L13, D43

Suggested Citation

Colombo, Stefano and Matsushima, Noriaki, Competition Between Offline and Online Retailers with Heterogeneous Customers (May 30, 2019). ISER DP No. 1056, May 2019. Available at SSRN: https://ssrn.com/abstract=3396820 or http://dx.doi.org/10.2139/ssrn.3396820

Stefano Colombo

Catholic University of the Sacred Heart of Milan ( email )

Noriaki Matsushima (Contact Author)

Osaka University - Institute of Social and Economic Research (ISER) ( email )

6-1 Mihogaoka
Ibaraki, Osaka 567-0047
Japan

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