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Prices, Locations and Welfare When an Online Retailer Competes with Heterogeneous Brick‐and‐Mortar Retailers
Author(s) -
Guo WenChung,
Lai FuChuan
Publication year - 2017
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/joie.12141
Subject(s) - brick and mortar , business , welfare , brick , online business , mortar , consumer welfare , industrial organization , microeconomics , economics , the internet , computer science , market economy , civil engineering , engineering , archaeology , world wide web , history
This study proposes a novel spatial model in which an online retailer competes with heterogeneous brick‐and‐mortar retailers. Consumers are assumed to be non‐uniformly distributed along an urban‐rural line, and online transactions provide savings in transportation costs at the expense of distaste costs. Among other results, we show that the surviving brick‐and‐mortar retailers eventually move toward densely populated (urban) areas after the entry of the online retailer. Consumer welfare, the policy of not taxing online business, and the socially optimal number of retailers are also analyzed.