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.
Highlights
Over the last two decades, technology-driven commerce innovation has transformed the retailing industry
This outcome is consistent with Sit et al (2018) which assert that browse-and-switch behavior is a positive consumer behavior and its potential opportunities can be better appreciated when retailer considers fully its experiential aspects, such as decision activities and emotions
We find that decreasing the price cannot be implemented as an effective strategy to deal with competition, for either the pure offline retailer or the hybrid retailer
Summary
Over the last two decades, technology-driven commerce innovation has transformed the retailing industry. If offline retailer can increase the probability that a consumer will like the product and purchase it at the store, especially for a product that requires being experienced, more profit can be derived This outcome is consistent with Sit et al (2018) which assert that browse-and-switch behavior is a positive consumer behavior and its potential opportunities can be better appreciated when retailer considers fully its experiential aspects, such as decision activities and emotions. In scenario A-H2, consumers will visit the offline retailer a or the physical store of the hybrid retailer and purchase the product if satisfied with it Under this circumstance, the spatial competition between two pure offline stores is discussed. Consumers who visit and purchase from the offline retailer if satisfied with the product
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