IDEAS home Printed from https://ideas.repec.org/a/spr/decisn/v49y2022i1d10.1007_s40622-021-00293-7.html
   My bibliography  Save this article

Economic models of price competition between traditional and online retailing under showrooming

Author

Listed:
  • Subrata Mitra

    (Indian Institute of Management Calcutta)

Abstract

Showrooming is a phenomenon when a customer views a product at a physical store, but buys it online from the same store’s website or from a competitor’s website. In this paper, we develop economic models of price competition between a traditional retailer and an online retailer under customer showrooming behaviour. Our results indicate that showrooming hurts the traditional retailer and benefits the online retailer in terms of sales volumes and profits. The combined offline and online market expands under showrooming. We consider two strategies—effort/investment made and online entry by the traditional retailer—to counter showrooming. Either strategy makes the traditional retailer better off, and the online retailer worse off, in terms of sales volumes and profits; also, the overall market, including offline and online sales, contracts. Moreover, when the traditional retailer makes an online entry, although its offline sales decrease, its total offline and online sales increase; also, although the overall market contracts, total online sales and the online price increase. We consider two scenarios of simultaneous and sequential moves made by the retailers to set their prices. We observe that both the retailers benefit under sequential moves than in the simultaneous move; however, the overall market demand is lower in sequential moves than in the simultaneous move. We have also conducted sensitivity analyses to check for robustness of the results. We conclude the paper by highlighting the managerial implications of this research and providing possible directions for future research.

Suggested Citation

  • Subrata Mitra, 2022. "Economic models of price competition between traditional and online retailing under showrooming," DECISION: Official Journal of the Indian Institute of Management Calcutta, Springer;Indian Institute of Management Calcutta, vol. 49(1), pages 29-63, March.
  • Handle: RePEc:spr:decisn:v:49:y:2022:i:1:d:10.1007_s40622-021-00293-7
    DOI: 10.1007/s40622-021-00293-7
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s40622-021-00293-7
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.

    File URL: https://libkey.io/10.1007/s40622-021-00293-7?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Fassnacht, Martin & Beatty, Sharon E. & Szajna, Markus, 2019. "Combating the negative effects of showrooming: Successful salesperson tactics for converting showroomers into buyers," Journal of Business Research, Elsevier, vol. 102(C), pages 131-139.
    2. Rapp, Adam & Baker, Thomas L. & Bachrach, Daniel G. & Ogilvie, Jessica & Beitelspacher, Lauren Skinner, 2015. "Perceived customer showrooming behavior and the effect on retail salesperson self-efficacy and performance," Journal of Retailing, Elsevier, vol. 91(2), pages 358-369.
    3. Gal-Or, Esther, 1985. "First Mover and Second Mover Advantages," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(3), pages 649-653, October.
    4. Kyle Cattani & Wendell Gilland & Hans Sebastian Heese & Jayashankar Swaminathan, 2006. "Boiling Frogs: Pricing Strategies for a Manufacturer Adding a Direct Channel that Competes with the Traditional Channel," Production and Operations Management, Production and Operations Management Society, vol. 15(1), pages 40-56, March.
    5. Li, Guo & Li, Lin & Sun, Jiasen, 2019. "Pricing and service effort strategy in a dual-channel supply chain with showrooming effect," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 126(C), pages 32-48.
    6. Zhang, Peng & He, Yong & Shi, Chunming (Victor), 2017. "Retailer's channel structure choice: Online channel, offline channel, or dual channels?," International Journal of Production Economics, Elsevier, vol. 191(C), pages 37-50.
    7. Elie Ofek & Zsolt Katona & Miklos Sarvary, 2011. ""Bricks and Clicks": The Impact of Product Returns on the Strategies of Multichannel Retailers," Marketing Science, INFORMS, vol. 30(1), pages 42-60, 01-02.
    8. Fei Gao & Xuanming Su, 2017. "Online and Offline Information for Omnichannel Retailing," Manufacturing & Service Operations Management, INFORMS, vol. 19(1), pages 84-98, February.
    9. Jiwoong Shin, 2007. "How Does Free Riding on Customer Service Affect Competition?," Marketing Science, INFORMS, vol. 26(4), pages 488-503, 07-08.
    10. Zhaolin (Erick) Li & Qiang Lu & Masoud Talebian, 2015. "Online versus bricks-and-mortar retailing: a comparison of price, assortment and delivery time," International Journal of Production Research, Taylor & Francis Journals, vol. 53(13), pages 3823-3835, July.
    11. 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.
    12. Frasquet, Marta & Miquel-Romero, Maria-Jose, 2021. "Competitive (versus loyal) showrooming: An application of the push-pull-mooring framework," Journal of Retailing and Consumer Services, Elsevier, vol. 62(C).
    13. Amit Mehra & Subodha Kumar & Jagmohan S. Raju, 2018. "Competitive Strategies for Brick-and-Mortar Stores to Counter “Showrooming”," Management Science, INFORMS, vol. 64(7), pages 3076-3090, July.
    14. Lipan Feng & Yongjian Li & Fangchao Xu & Qianzhou Deng, 2019. "Optimal pricing and trade-in policies in a dual-channel supply chain when considering market segmentation," International Journal of Production Research, Taylor & Francis Journals, vol. 57(9), pages 2828-2846, May.
    15. Zhang, Shichen & Zhang, Jianxiong, 2020. "Agency selling or reselling: E-tailer information sharing with supplier offline entry," European Journal of Operational Research, Elsevier, vol. 280(1), pages 134-151.
    16. Raj, S.P. & Rhee, Byong-Duk & Sivakumar, K., 2020. "Manufacturer adoption of a unilateral pricing policy in a multi-channel setting to combat customer showrooming," Journal of Business Research, Elsevier, vol. 110(C), pages 104-118.
    17. Schneider, Patricia J. & Zielke, Stephan, 2021. "Price versus service: Can retailers beat showrooming with competence?," Journal of Retailing and Consumer Services, Elsevier, vol. 61(C).
    18. Xing, Dahai & Liu, Tieming, 2012. "Sales effort free riding and coordination with price match and channel rebate," European Journal of Operational Research, Elsevier, vol. 219(2), pages 264-271.
    19. Erik Brynjolfsson & Michael D. Smith, 2000. "Frictionless Commerce? A Comparison of Internet and Conventional Retailers," Management Science, INFORMS, vol. 46(4), pages 563-585, April.
    20. Vibhanshu Abhishek & Kinshuk Jerath & Z. John Zhang, 2016. "Agency Selling or Reselling? Channel Structures in Electronic Retailing," Management Science, INFORMS, vol. 62(8), pages 2259-2280, August.
    21. Li, Gang & Zhang, Tao & Tayi, Giri Kumar, 2020. "Inroad into omni-channel retailing: Physical showroom deployment of an online retailer," European Journal of Operational Research, Elsevier, vol. 283(2), pages 676-691.
    22. David R. Bell & Santiago Gallino & Antonio Moreno, 2018. "Offline Showrooms in Omnichannel Retail: Demand and Operational Benefits," Management Science, INFORMS, vol. 64(4), pages 1629-1651, April.
    23. Dazhong Wu & Gautam Ray & Xianjun Geng & Andrew Whinston, 2004. "Implications of Reduced Search Cost and Free Riding in E-Commerce," Marketing Science, INFORMS, vol. 23(2), pages 255-262, November.
    24. Bing Jing, 2018. "Showrooming and Webrooming: Information Externalities Between Online and Offline Sellers," Marketing Science, INFORMS, vol. 37(3), pages 469-483, May.
    25. Limeng Chai & Desheng Dash Wu & Alexandre Dolgui & Yongrui Duan, 2021. "Pricing strategy for B&M store in a dual-channel supply chain based on hotelling model," International Journal of Production Research, Taylor & Francis Journals, vol. 59(18), pages 5578-5591, September.
    26. Zhixin Liu & Liang Lu & Xiangtong Qi, 2020. "The showrooming effect on integrated dual channels," Journal of the Operational Research Society, Taylor & Francis Journals, vol. 71(9), pages 1347-1356, September.
    27. Mingming Shi & Jun Zhou & Zhou Jiang, 2019. "Consumer heterogeneity and online vs. offline retail spatial competition," Frontiers of Business Research in China, Springer, vol. 13(1), pages 1-19, December.
    28. Kokho Sit, Jason & Hoang, Anna & Inversini, Alessandro, 2018. "Showrooming and retail opportunities: A qualitative investigation via a consumer-experience lens," Journal of Retailing and Consumer Services, Elsevier, vol. 40(C), pages 163-174.
    29. Gensler, Sonja & Neslin, Scott A. & Verhoef, Peter C., 2017. "The Showrooming Phenomenon: It's More than Just About Price," Journal of Interactive Marketing, Elsevier, vol. 38(C), pages 29-43.
    30. Wirawan Dony Dahana & HeeJae Shin & Sotaro Katsumata, 2018. "Influence of individual characteristics on whether and how much consumers engage in showrooming behavior," Electronic Commerce Research, Springer, vol. 18(4), pages 665-692, December.
    31. Wang, Cuixia & Leng, Mingming & Liang, Liping, 2018. "Choosing an online retail channel for a manufacturer: Direct sales or consignment?," International Journal of Production Economics, Elsevier, vol. 195(C), pages 338-358.
    32. Radhi, Mohannad & Zhang, Guoqing, 2019. "Optimal cross-channel return policy in dual-channel retailing systems," International Journal of Production Economics, Elsevier, vol. 210(C), pages 184-198.
    33. Gupta, Vishal Kumar & Ting, Q.U. & Tiwari, Manoj Kumar, 2019. "Multi-period price optimization problem for omnichannel retailers accounting for customer heterogeneity," International Journal of Production Economics, Elsevier, vol. 212(C), pages 155-167.
    34. Agatz, Niels A.H. & Fleischmann, Moritz & van Nunen, Jo A.E.E., 2008. "E-fulfillment and multi-channel distribution - A review," European Journal of Operational Research, Elsevier, vol. 187(2), pages 339-356, June.
    35. Anantaram Balakrishnan & Shankar Sundaresan & Bo Zhang, 2014. "Browse-and-Switch: Retail-Online Competition under Value Uncertainty," Production and Operations Management, Production and Operations Management Society, vol. 23(7), pages 1129-1145, July.
    36. Yi He & Qingyun Xu & Pengkun Wu, 2020. "Omnichannel retail operations with refurbished consumer returns," International Journal of Production Research, Taylor & Francis Journals, vol. 58(1), pages 271-290, January.
    37. Li, Yanran & Li, Bo & Zheng, Wei & Chen, Xue, 2021. "Reveal or hide? Impact of demonstration on pricing decisions considering showrooming behavior," Omega, Elsevier, vol. 102(C).
    38. Bernstein, Fernando & Song, Jing-Sheng & Zheng, Xiaona, 2008. ""Bricks-and-mortar" vs. "clicks-and-mortar": An equilibrium analysis," European Journal of Operational Research, Elsevier, vol. 187(3), pages 671-690, June.
    39. Zhou, Yong-Wu & Guo, Jinsen & Zhou, Wenhui, 2018. "Pricing/service strategies for a dual-channel supply chain with free riding and service-cost sharing," International Journal of Production Economics, Elsevier, vol. 196(C), pages 198-210.
    40. von Briel, Frederik, 2018. "The future of omnichannel retail: A four-stage Delphi study," Technological Forecasting and Social Change, Elsevier, vol. 132(C), pages 217-229.
    41. Flavián, Carlos & Gurrea, Raquel & Orús, Carlos, 2020. "Combining channels to make smart purchases: The role of webrooming and showrooming," Journal of Retailing and Consumer Services, Elsevier, vol. 52(C).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Wang, Junbin & Wang, Shanshan, 2022. "Revisiting the showrooming effect on online and offline retailers: The strategic role of in-store service," Journal of Retailing and Consumer Services, Elsevier, vol. 66(C).
    2. Li, Yanran & Li, Bo & Zheng, Wei & Chen, Xue, 2021. "Reveal or hide? Impact of demonstration on pricing decisions considering showrooming behavior," Omega, Elsevier, vol. 102(C).
    3. Tian, Chen & Xiao, Tiaojun & Shang, Jennifer, 2022. "Channel differentiation strategy in a dual-channel supply chain considering free riding behavior," European Journal of Operational Research, Elsevier, vol. 301(2), pages 473-485.
    4. Sun, Yanhong & Wang, Zihan & Han, Xiaohua, 2020. "Supply chain channel strategies for online retailers: Whether to introduce web showrooms?," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 144(C).
    5. Schneider, Patricia J. & Zielke, Stephan, 2021. "Price versus service: Can retailers beat showrooming with competence?," Journal of Retailing and Consumer Services, Elsevier, vol. 61(C).
    6. Wei, Jie & Chang, Meijing & Zhao, Jing, 2023. "Price matching and product differentiation strategies considering showrooming," Journal of Retailing and Consumer Services, Elsevier, vol. 75(C).
    7. María Alesanco-Llorente & Eva Reinares-Lara & Jorge Pelegrín-Borondo & Cristina Olarte-Pascual, 2023. "The mobile-assisted showroomer’s dilemma: where to buy? Actions to prevent sales leakage," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-8, December.
    8. Cai, Ya-Jun & Lo, Chris K.Y., 2020. "Omni-channel management in the new retailing era: A systematic review and future research agenda," International Journal of Production Economics, Elsevier, vol. 229(C).
    9. Huang, Lingchen & Liu, Bin & Zhang, Rong, 2024. "Channel strategies for competing retailers: Whether and when to introduce live stream?," European Journal of Operational Research, Elsevier, vol. 312(2), pages 413-426.
    10. Li, Zonghuo & Wang, Di & Yang, Wensheng & Jin, Hyun Seung, 2022. "Price, online coupon, and store service effort decisions under different omnichannel retailing models," Journal of Retailing and Consumer Services, Elsevier, vol. 64(C).
    11. Konur, Dinçer, 2021. "Keep your enemy close? Competitive online brands’ expansion with individual and shared showrooms," Omega, Elsevier, vol. 99(C).
    12. Li, Guo & Li, Lin & Sun, Jiasen, 2019. "Pricing and service effort strategy in a dual-channel supply chain with showrooming effect," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 126(C), pages 32-48.
    13. Jena, Sarat Kumar & Meena, Purushottam, 2022. "Shopping in the omnichannel supply chain under price competition and product return," Journal of Retailing and Consumer Services, Elsevier, vol. 65(C).
    14. Sun, Shuzhen & Liu, Tieming, 2023. "Pricing and sales-effort coordination facing free riding behaviors between a brick-and-mortar retailer and a platform store owned by the manufacturer," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 179(C).
    15. Pun, Hubert & Chen, Jing & Li, Wei, 2020. "Channel strategy for manufacturers in the presence of service freeriders," European Journal of Operational Research, Elsevier, vol. 287(2), pages 460-479.
    16. Luis-Edwin Chimborazo-Azogue & Marta Frasquet & Alejandro Molla-Descals & Maria-Jose Miquel-Romero, 2021. "Understanding Mobile Showrooming Based on a Technology Acceptance and Use Model," Sustainability, MDPI, vol. 13(13), pages 1-17, June.
    17. He, Yi & Xu, Qingyun & Shao, Zhen, 2021. "“Ship-from-store” strategy in platform retailing," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 145(C).
    18. Taiguang Gao & Kui Wang & Yali Mei & Shan He & Yanfang Wang, 2022. "Supply Chain Pricing Models Considering Risk Attitudes under Free-Riding Behavior," Mathematics, MDPI, vol. 10(10), pages 1-22, May.
    19. Fiestas, Jorge Carlos & Tuzovic, Sven, 2021. "Mobile-assisted showroomers: Understanding their purchase journey and personalities," Journal of Retailing and Consumer Services, Elsevier, vol. 58(C).
    20. Zhong, Yuyun & Shen, Wenjing & Ceryan, Oben, 2023. "Information provision under showrooming and webrooming," Omega, Elsevier, vol. 114(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:decisn:v:49:y:2022:i:1:d:10.1007_s40622-021-00293-7. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.