Get 20M+ Full-Text Papers For Less Than $1.50/day. Subscribe now for You or Your Team.

Learn More →

Competition Between Local and Electronic Markets: How the Benefit of Buying Online Depends on Where You Live

Competition Between Local and Electronic Markets: How the Benefit of Buying Online Depends on... Our paper shows that the parameters in existing theoretical models of channel substitution such as offline transportation cost, online disutility cost, and the prices of online and offline retailers interact to determine consumer choice of channels. In this way, our results provide empirical support for many such models. In particular, we empirically examine the trade-off between the benefits of buying online and the benefits of buying in a local retail store. How does a consumer's physical location shape the relative benefits of buying from the online world? We explore this problem using data from Amazon.com on the top-selling books for 1,497 unique locations in the United States for 10 months ending in January 2006. We show that when a store opens locally, people substitute away from online purchasing, even controlling for product-specific preferences by location. These estimates are economically large, suggesting that the disutility costs of purchasing online are substantial and that offline transportation costs matter. We also show that offline entry decreases consumers' sensitivity to online price discounts. However, we find no consistent evidence that the breadth of the product line at a local retail store affects purchases. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Management Science INFORMS

Competition Between Local and Electronic Markets: How the Benefit of Buying Online Depends on Where You Live

Management Science , Volume 55 (1): 11 – Jan 30, 2009
11 pages

Loading next page...
 
/lp/informs/competition-between-local-and-electronic-markets-how-the-benefit-of-o0TJYTTGVR

References (7)

Publisher
INFORMS
Copyright
Copyright © INFORMS
Subject
Research Article
ISSN
0025-1909
eISSN
1526-5501
DOI
10.1287/mnsc.1080.0932
Publisher site
See Article on Publisher Site

Abstract

Our paper shows that the parameters in existing theoretical models of channel substitution such as offline transportation cost, online disutility cost, and the prices of online and offline retailers interact to determine consumer choice of channels. In this way, our results provide empirical support for many such models. In particular, we empirically examine the trade-off between the benefits of buying online and the benefits of buying in a local retail store. How does a consumer's physical location shape the relative benefits of buying from the online world? We explore this problem using data from Amazon.com on the top-selling books for 1,497 unique locations in the United States for 10 months ending in January 2006. We show that when a store opens locally, people substitute away from online purchasing, even controlling for product-specific preferences by location. These estimates are economically large, suggesting that the disutility costs of purchasing online are substantial and that offline transportation costs matter. We also show that offline entry decreases consumers' sensitivity to online price discounts. However, we find no consistent evidence that the breadth of the product line at a local retail store affects purchases.

Journal

Management ScienceINFORMS

Published: Jan 30, 2009

Keywords: Keywords : channel substitution ; theory testing ; Internet retailing

There are no references for this article.