Competitive Policy for Online Retailers’ Intrusion in E-Commence

Abstract

In recent years, online retail has developed rapidly. However, as consumer demands become increasingly sophisticated, the traditional online retail model has encountered difficulties with respect to meeting consumers’ needs. As a result, numerous retailers with offline physical stores have emerged in the online retail industry. This paper constructs a game model for the invasion of the market by e-commerce retailers with offline physical stores in a context in which a traditional, online-only incumbent retailer is already in the market. Compared with the new entrant, the incumbent has the advantage of an established good reputation, and consumers prefer the products of the incumbent. This research shows that as consumers’ product valuations increase, the following three situations may occur: a partially covered market, a multiple-equilibrium market or a fully covered market. In a partially covered market, the incumbency advantage does not affect the entrant. In a multiple-equilibrium market or fully covered market, the incumbency advantage impacts the profits of the entrant. However, in a fully covered market, if the incumbency advantage is too large, the profits of both retailers are damaged. Finally, this paper finds that offline physical stores can provide positive benefits to entrants. When consumers are highly sensitive to services, opening offline physical stores is an effective intrusion strategy that entrants can use to overcome the incumbency advantage.