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Note on Self-Restraint as an Online Entry-Deterrence Strategy

Author

Listed:
  • Yunchuan Liu

    (College of Business, University of Illinois at Urbana-Champaign, 1206 South Sixth Street, Champaign, Illinois 61820)

  • Sunil Gupta

    (Harvard Business School, 179 Morgan Hall, Soldiers Field, Boston, Massachusetts 02163)

  • Z. John Zhang

    (The Wharton School, University of Pennsylvania, 700 Jon M. Huntsman Hall, 3730 Walnut Street, Philadelphia, Pennsylvania 19104-6340)

Abstract

We develop a game-theoretical model to show that in the markets where price consistency across channels is critical, an incumbent brick-and-mortar retailer can deter the online entry of a pure-play e-tailer by strategically refraining from entering online. In the markets where price consistency is not a constraint, we find that the incumbent can deter the e-tailer's entry only if it enters online and credibly operates the online channel as an independent profit center. In other words, the incumbent must be willing to cannibalize its own brick-and-mortar business by charging a low online price. We also discuss some social welfare implications of retail online entry and the managerial insights of our analysis.

Suggested Citation

  • Yunchuan Liu & Sunil Gupta & Z. John Zhang, 2006. "Note on Self-Restraint as an Online Entry-Deterrence Strategy," Management Science, INFORMS, vol. 52(11), pages 1799-1809, November.
    • Handle: RePEc:inm:ormnsc:v:52:y:2006:i:11:p:1799-1809
    DOI: 10.1287/mnsc.1050.0566
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    References listed on IDEAS

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