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The shop around the corner in the Internet age

Author

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  • Jérôme Foncel
  • Marianne Guyot
  • Frédéric Jouneau-Sion

Abstract

We study a spatial competition model which is a variant of the celebrated Hotelling (1929) framework. One of the firm is a brick-and-mortar one while the other is on-line. Both firms sell the same product except that (constant) marginal costs may differ. Consumers going to the shop around the corner face transportation costs according to their adress whereas on-line consumers bear a fix cost that may capture technological burden and risk premium. In the pricing Nash equilibria the “new economy” firm has smaller market shares eventhough it offers more attractive prices. For the on-line firm to become a leader, the cost difference must be large enough to offset the comparative disadvantage it face on the demand side. In the long run, increasing competition ultimately forces the local firm out of downtown. We argue that this effect may be related to some of the forecasts concerning the geographical impact of the development of remote access services. JEL classification: R12, L86, L11

Suggested Citation

  • Jérôme Foncel & Marianne Guyot & Frédéric Jouneau-Sion, 2011. "The shop around the corner in the Internet age," Recherches économiques de Louvain, De Boeck Université, vol. 77(2), pages 47-85.
  • Handle: RePEc:cai:reldbu:rel_772_0047
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    1. repec:bla:jindec:v:65:y:2017:i:2:p:439-468 is not listed on IDEAS

    More about this item

    Keywords

    spatial competition; economic geography; E-marketing;

    JEL classification:

    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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