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Impact of Web-Based e-Commerce on Channel Strategy

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  • King, Ruth C.

    (U of Illinois at Urbana-Champaign)

  • Sen, Ravi

    (U of Illinois at Urbana-Champaign)

  • Xia, Mu

    (U of Illinois at Urbana-Champaign)

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Abstract

The existing literature and industry trends suggest that web-based channels are fast becoming an integral part of the traditionally offline retailers' overall channel strategy. This paper takes a game theoretic approach to study the impact of web-based e-commerce on the choice of distribution channel strategy by the retailers. The current practice by most firms is to adopt a multi-channel strategy, which includes both web-based channels and preexisting offline channels. Our analysis validates this trend by identifying it as one of the equilibriums of the game, resulting from the competitive pressure induces by the other retailers. However, a more interesting outcome from our analysis is that there are other possible outcomes. The other possible outcomes include one where some sellers adopt a coordinated dual channel (i.e., both online and offline) strategy while the others continue selling through traditional offline channels, and another one where all the sellers switch to online channels. The latter outcome is unlikely to occur for industries where traditionally offline sellers have invested heavily in distribution-specific assets. However, it does provide an explanation for new web-based sellers' reluctance to include offline channels in their overall channel strategy.

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File URL: http://www.business.illinois.edu/Working_Papers/papers/02-0123.pdf
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Bibliographic Info

Paper provided by University of Illinois at Urbana-Champaign, College of Business in its series Working Papers with number 02-0123.

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Date of creation: 2002
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Handle: RePEc:ecl:illbus:02-0123

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Web page: http://www.business.uiuc.edu/Working_Papers/Main.asp
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  1. Rajiv Lal & Miklos Sarvary, 1999. "When and How Is the Internet Likely to Decrease Price Competition?," Marketing Science, INFORMS, vol. 18(4), pages 485-503.
  2. Vicki G. Morwitz & David C. Schmittlein, 1998. "Testing New Direct Marketing Offerings: The Interplay of Management Judgment and Statistical Models," Management Science, INFORMS, vol. 44(5), pages 610-628, May.
  3. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
  4. Minakshi Trivedi, 1998. "Distribution Channels: An Extension of Exclusive Retailership," Management Science, INFORMS, vol. 44(7), pages 896-909, July.
  5. Michael Smith & Erik Brynjolfsson, 1999. "Frictionless Commerce? A Comparison of Internet and Conventional Retailers," Computing in Economics and Finance 1999 1022, Society for Computational Economics.
  6. Lumpkin, James R. & Hawes, Jon M. & Darden, William R., 1986. "Shopping patterns of the rural consumer: Exploring the relationship between shopping orientations and outshopping," Journal of Business Research, Elsevier, vol. 14(1), pages 63-81, February.
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