Keep your enemy close? Competitive online brands’ expansion with individual and shared showrooms

Abstract

Showroom locating is a recent practice implemented by online brands to address the customers’ need for trying a product before making a purchase. Showrooms are shown to stimulate sales and enhance customer engagement. In this study, two competitive online brands’ showroom expansion and pricing decisions are jointly analyzed. First, given showroom decisions, we investigate the equilibrium prices and discuss the implications of different showroom configurations on the prices, demands, and profits of the brands. It is shown that a brand’s showroom expansion can hurt as well as benefit the other brand. After that, the equilibrium expansion with individual showrooms is characterized when the expansion decisions are made sequentially or simultaneously. We also characterize how the equilibrium decisions change depending on a showroom’s impact on the brands’ market potentials. Finally, a shared showroom concept is examined and cost-sharing contracts for sharing a showroom are introduced based on a brand’s initiation, bargaining, and fairness considerations. The findings imply that sharing a showroom can increase total profits. Furthermore, it is possible that a brand can incentivize the other brand to share a showroom.