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Shopping Versus Shipping: A Spatial Competition Theory of E-commerce

Author

Listed:
  • Gokan, Toshitaka
  • Thisse, Jacques-François

    (Université catholique de Louvain, LIDAM/CORE, Belgium)

  • Zhu, Xiwei

Abstract

Online retailers compete not only on price but also on delivery performance, making logistics a central issue in the structure of the retail industry. Online retailers may choose either a uniform delivered price or location-specific delivered prices, whereas offline retailers rely on uniform mill pricing. Using a game-theoretic model that incorporates shopping costs, shipping costs, distaste costs, and consumer taste heterogeneity, we characterize the equilibrium structure of the retail industry. The existence of equilibrium critically depends on the degree of taste heterogeneity. An offline retailer chooses to move online when distaste or shipping costs are sufficiently low. However, firms become trapped in a Prisonerís Dilemma when both adopt uniform delivered pricing. When both firms operate as e-retailers, they engage in a Game of Chicken and soften price competition by adopting di§erent pricing formats. We also describe the evolution of the retail industry from conventional retailing to personalized pricing as distaste and shipping costs decline.

Suggested Citation

  • Gokan, Toshitaka & Thisse, Jacques-François & Zhu, Xiwei, 2026. "Shopping Versus Shipping: A Spatial Competition Theory of E-commerce," LIDAM Discussion Papers CORE 2026009, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2026009
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    Keywords

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    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General

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