To Surf Or To Ride

An Analysis of Channel Competition Between Electronic and Retail Stores
  • Beomsoo Kim
  • Byungtae Lee
Chapter
Part of the Operations Research/Computer Science Interfaces Series book series (ORCS, volume 16)

Abstract

We study the competition between two shopping channels, i.e. electronic stores and retail stores, to focus on the profitability and expansion strategies of these channels as a function of consumer characteristics and store cost structure. A consumer’s choice of a store is determined by price differences, perceived risk in online buying, network comfort level, and retail discomfort level (logical distance between a consumer and a retail store). Based on Hotelling’s model of spatial competition, we find that the number of retail stores has no effect on the optimal pricing strategies of either the electronic store or the retail store. The result holds even when the retail stores belong to one chain. The optimal prices of the two channels move in the same direction at different rates with changes in the importance of network comfort level.

Key words

Channel Competition Transaction Cost Network Comfort Level Perceived Risk 
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Copyright information

© Springer Science+Business Media New York 2002

Authors and Affiliations

  • Beomsoo Kim
    • 1
  • Byungtae Lee
    • 2
  1. 1.Information and Decision Sciences DepartmentUniversity of Illinois at ChicagoChicagoUSA
  2. 2.Information and Decision Sciences DepartmentUniversity of Illinois at ChicagoChicagoUSA

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