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Shopping Versus Shipping: The Strategic Choice of Retail Format

Author

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

Abstract

We develop a parsimonious model that incorporates shopping and shipping costs, a distaste cost, consumer taste heterogeneity, and the pricing strategies of online and offline retailers. We compare offline, mixed and online duopolies and show that the retailing industry equilibrium depends on the degree of taste heterogeneity, but also on the value of shopping and shipping costs. Consumers' most-preferred retail format depends on their location relative to the retailers. In the aggregate, consumers are better-off under online retailing. However, firms are worse-off because they get trapped in a prisoner's dilemma.

Suggested Citation

  • Gokan, Toshitaka & Thisse, Jacques-François & Zhu, Xiwei, 2025. "Shopping Versus Shipping: The Strategic Choice of Retail Format," CEPR Discussion Papers 20913, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:20913
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    File URL: https://cepr.org/publications/DP20913
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    More about this item

    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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