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Electronic commerce, consumer search and reailing cost reduction

  • Cristina Mazón


    (Universidad Complutense de Madrid. Departamento de Fundamentos del Análisis Económico II)

  • Pedro Pereira


    (Universidad Complutense de Madrid. Departamento de Fundamentos del Análisis Económico II)

This paper explains four things in a unified way. First, how e-commerce can generate price equilibria, where physical shops either compete with virtual hops for consumers with Internet access, or alternatively, sell only to consumers with no Internet access. Second, how these price equilibria might involve price dispersion on-line. Third, why prices may be higher on-line. Fourth, why established firms can, but need not, be more reluctant than newly created firms to adopt ecommerce. For this purpose we develop a model where e-commerce reduces consumers’ search costs, involves trade-offs for consumers, and reduces retailing costs. Este trabajo explica, de manera unificada, cuatro cosas. Primero, cómo el comercio electrónico puede generar equilibrios de precios en los que las tiendas físicas compiten con las tiendas virtuales por los consumidores con acceso a Internet, o, alternativamente, venden sólo a los clientes que no tienen acceso a Internet. Segundo, cómo estos equilibrios de precios pueden generar dispersión de precios en Internet. Tercero, por qué los precios de las tiendas virtuales pueden ser más altos que los de las tiendas físicas. Y cuarto, por qué las empresas establecidas pueden tener menos incentivos que las empresas de nuevas creación para abrir tiendas virtuales. Para ello desarrollamos un modelo en el que el comercio electrónic o reduce los costes de búsqueda de los consumidores, implica un trade-off para los consumidores, y disminuye los costes de producción de las empresas.

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Paper provided by Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico in its series Documentos de Trabajo del ICAE with number 0102.

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Length: 30 page
Date of creation: 2001
Date of revision:
Handle: RePEc:ucm:doicae:0102
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  1. Sridhar Balasubramanian, 1998. "Mail versus Mall: A Strategic Analysis of Competition between Direct Marketers and Conventional Retailers," Marketing Science, INFORMS, vol. 17(3), pages 181-195.
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  11. Avishay Braverman, 1980. "Consumer Search and Alternative Market Equilibria," Review of Economic Studies, Oxford University Press, vol. 47(3), pages 487-502.
  12. Michael Smith & Erik Brynjolfsson, 1999. "Frictionless Commerce? A Comparison of Internet and Conventional Retailers," Computing in Economics and Finance 1999 1022, Society for Computational Economics.
  13. Rosenthal, Robert W, 1980. "A Model in Which an Increase in the Number of Sellers Leads to a Higher Price," Econometrica, Econometric Society, vol. 48(6), pages 1575-79, September.
  14. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
  15. Michael, Steven C., 1994. "Competition in organizational form : Mail order versus retail stores, 1910-1940," Journal of Economic Behavior & Organization, Elsevier, vol. 23(3), pages 269-286, May.
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