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Battle of the Retail Channels: How Product Selection and Geography Drive Cross-Channel Competition

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  • Erik Brynjolfsson

    () (Sloan School of Management, Massachusetts Institute of Technology, Cambridge, Massachusetts 02142)

  • Yu (Jeffrey) Hu

    () (Krannert School of Management, Purdue University, West Lafayette, Indiana 47907)

  • Mohammad S. Rahman

    () (Haskayne School of Business, University of Calgary, Calgary, Alberta T2N 1N4, Canada)

Abstract

A key question for Internet commerce is the nature of competition with traditional brick-and-mortar retailers. Although traditional retailers vastly outsell Internet retailers in most product categories, research on Internet retailing has largely neglected this fundamental dimension of competition. Is cross-channel competition significant, and if so, how and where can Internet retailers win this battle? This paper attempts to answer these questions using a unique combination of data sets. We collect data on local market structures for traditional retailers, and then match these data to a data set on consumer demand via two direct channels: Internet and catalog. Our analyses show that Internet retailers face significant competition from brick-and-mortar retailers when selling mainstream products, but are virtually immune from competition when selling niche products. Furthermore, because the Internet channel sells proportionately more niche products than the catalog channel, the competition between the Internet channel and local stores is less intense than the competition between the catalog channel and local stores. The methods we introduce can be used to analyze cross-channel competition in other product categories, and suggest that managers need to take into account the types of products they sell when assessing competitive strategies.

Suggested Citation

  • Erik Brynjolfsson & Yu (Jeffrey) Hu & Mohammad S. Rahman, 2009. "Battle of the Retail Channels: How Product Selection and Geography Drive Cross-Channel Competition," Management Science, INFORMS, vol. 55(11), pages 1755-1765, November.
  • Handle: RePEc:inm:ormnsc:v:55:y:2009:i:11:p:1755-1765
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    File URL: http://dx.doi.org/10.1287/mnsc.1090.1062
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Sunil Chopra, 2016. "How omni-channel can be the future of retailing," DECISION: Official Journal of the Indian Institute of Management Calcutta, Springer;Indian Institute of Management Calcutta, vol. 43(2), pages 135-144, June.
    2. Cantner, Uwe & Graf, Holger & Herrmann, Johannes & Kalthaus, Martin, 2016. "Inventor networks in renewable energies: The influence of the policy mix in Germany," Research Policy, Elsevier, vol. 45(6), pages 1165-1184.
    3. Son, Jungmin & Kim, Jikyung (Jeanne) & Choi, Jeonghye & Kim, Mingyung, 2017. "Linking online niche sales to offline brand conditions," Journal of Business Research, Elsevier, vol. 70(C), pages 74-84.
    4. Hu, Yu Jeffrey & Tang, Zhulei, 2014. "The impact of sales tax on internet and catalog sales: Evidence from a natural experiment," International Journal of Industrial Organization, Elsevier, vol. 32(C), pages 84-90.
    5. Delphine Irac & Claire Célérier & Philippe Askenazy, 2010. "Vente à distance, internet et dynamiques des prix," Économie et Prévision, Programme National Persée, vol. 194(3), pages 1-13.
    6. Wu, Chongqi & Mallik, Suman, 2010. "Cross sales in supply chains: An equilibrium analysis," International Journal of Production Economics, Elsevier, vol. 126(2), pages 158-167, August.
    7. Jeonghye Choi & David R. Bell & Leonard M. Lodish, 2012. "Traditional and IS-Enabled Customer Acquisition on the Internet," Management Science, INFORMS, vol. 58(4), pages 754-769, April.
    8. repec:eee:ejores:v:267:y:2018:i:1:p:65-77 is not listed on IDEAS
    9. Chris Forman, 2013. "How has information technology use shaped the geography of economic activity?," Chapters,in: Handbook of Industry Studies and Economic Geography, chapter 10, pages 253-270 Edward Elgar Publishing.
    10. Kasing Man & Junbo Wang & Chunchi Wu, 2013. "Price Discovery in the U.S. Treasury Market: Automation vs. Intermediation," Management Science, INFORMS, vol. 59(3), pages 695-714, September.
    11. Michael, Bryane & Hartwell, Christopher A. & Korovkin, Vladimir, 2015. "CP ALL and the Case of Value Web Creation," EconStor Preprints 109020, ZBW - German National Library of Economics.
    12. Erik Brynjolfsson & Yu (Jeffrey) Hu & Duncan Simester, 2011. "Goodbye Pareto Principle, Hello Long Tail: The Effect of Search Costs on the Concentration of Product Sales," Management Science, INFORMS, vol. 57(8), pages 1373-1386, August.
    13. Ajay K. Agrawal & Christian Catalini & Avi Goldfarb, 2011. "The Geography of Crowdfunding," NBER Working Papers 16820, National Bureau of Economic Research, Inc.
    14. Carrillo, Janice E. & Vakharia, Asoo J. & Wang, Ruoxuan, 2014. "Environmental implications for online retailing," European Journal of Operational Research, Elsevier, vol. 239(3), pages 744-755.

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