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Consumer heterogeneity and online vs. offline retail spatial competition |
Mingming Shi1(), Jun Zhou2, Zhou Jiang3 |
1. Business School, Renmin University of China, Rm 1015, Mingde Business Building, 59 Zhongguancun Street, Haidian District, Beijing 100872, China 2. Business School, Renmin University of China, Rm 1015, Mingde Business Building, 59 Zhongguancun Street, Haidian District, Beijing 100872, China 3. Business School, Renmin University of China, Rm 1015, Mingde Business Building, 59 Zhongguancun Street, Haidian District, Beijing 100872, China |
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Abstract This paper develops a game-theoretic spatial model featuring consumer heterogeneity in online vs. offline retailers’ spatial competition. We find that consumers’ browse-and-switch behavior intensifies the competition because both offline and online retailers’ price and profit decline when the behavior occurs, but it is not necessarily a threat to offline retailers especially when the product relates more closely to experience. We consider six equilibrium scenarios for different combinations of consumer behaviors when considering a hybrid retailer. The analysis taking consumer heterogeneity into consideration shows that the hybrid retailer operating both online and offline is not always the winner. Particularly, the business opportunity for the offline retailer lies in consumers’ willingness to pay in store, and whether the retailer launches an online store depends on the type of products and services provided.
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Keywords
Spatial competition
Online retailing
Browse-and-switch behavior
Consumer heterogeneity
Consumer behavior
China
Circular city model
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Issue Date: 15 July 2019
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