Competition Between Local and Electronic Markets: How the Benefit of Buying Online Depends on Where You Live

By Chris M. Forman, Anindya Ghose, Avi Goldfarb. Management Sciences, 2009

546 citations recorded by the source corpus.

Our paper shows that the parameters in existing theoretical models of channel substitution such as offline transportation cost, online disutility cost, and the prices of online and offline retailers interact to determine consumer choice of channels. In this way, our results provide empirical support for many such models. In particular, we empirically examine the trade-off between the benefits of buying online and the benefits of buying in a local retail store. How does a consumer's physical location shape the relative benefits of buying from the online world? We explore this problem using data from Amazon.com on the top-selling books for 1,497 unique locations in the United States for 10 months ending in January 2006. We show that when a store opens locally, people substitute away from online purchasing, even controlling for product-specific preferences by location. These estimates are economically large, suggesting that the disutility costs of purchasing online are substantial and that offline transportation costs matter. We also show that offline entry decreases consumers' sensitivity to online price discounts. However, we find no consistent evidence that the breadth of the product line at a local retail store affects purchases.

Subfields: Management Science and Operations Research, Marketing, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/bf69d8a4662e87bca0afb43d14b3ac5dbc87af1d

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Citations in the corpus

Browse‐and‐Switch: Retail‐Online Competition under Value Uncertainty (2014, background): “…for various disadvantages of online purchasing, including having to wait for product delivery, concerns about the security and privacy of online transactions, and disutilities associated with the e-tailer’s delivery performance or after-sales service (e.g., Forman et al. 2009, Gupta et al. 2004).”
'Showrooming' and the Competition between Store and Online Retailers (2013, unknown): “Forman et al. (2009) empirically establish the existence of these costs.”
Adding Bricks to Clicks: Predicting the Patterns of Cross-Channel Elasticities over Time (2011, background): “Our discussions with retail managers and previous research suggest that geodemographics, such as distance to the store (Bell, Ho, and Tang 1998; Forman, Ghose, and Goldfarb 2009; Fox, Montgomery, and Lodish 2002; Venkatesan, Kumar, and Ravishankar 2007), age (Ansari, Mela, and Neslin 2008; Ward…”
Battle of the Retail Channels: How Product Selection and Geography Drive Cross-Channel Competition (2009, background): “Our paper is closely related to two interesting papers that study how geographic variables have an impact on consumers’ online behavior—Sinai and Waldfogel (2004) and Forman et al. (2009)—although it differs from them in many aspects.”
Responses to Entry in Multi-Sided Markets: The Impact of Craigslist on Local Newspapers (2014, background): “…examined whether online and offline channels substitute or complement each other (e.g., Zentner 2005; Kaiser 2006; Gentzkow 2007; Simon and Kadiyali 2007; Forman, Ghose, and Goldfarb 2009; Danaher et al. 2010; Choi and Bell 2011; Goldfarb and Tucker 2011a, 2011b; Liebowitz and Zentner forthcoming).”
Examining the Relationship Between Reviews and Sales: The Role of Reviewer Identity Disclosure in Electronic Markets (2008, methodology): “prior work by Forman et al. (2007) who use similar data—increases”
Advertising Bans and the Substitutability of Online and Offline Advertising (2011, unknown): “…Wilson, and Davis 2003), word of mouth (Bell and Song 2007; Forman, Ghose, and Wiesenfeld 2008), purchases (Brynjolfsson, Hu, and Rahman 2009; Forman, Ghose, and Goldfarb 2009), customized promotions (Zhang and Wedel 2009), ad pricing (Goldfarb and Tucker 2009), search behavior (Lambert and…”
How is the Mobile Internet Different (2012, background): “Several empirical studies show that the online channel is more valuable when consumers have to travel further to reach an offline store (Forman et al. 2009, Anderson et al. 2010).”
The Rise of the Sharing Economy: Estimating the Impact of Airbnb on the Hotel Industry (2017, unknown): “This entry measure appears in the main specification of other studies including Forman et al. (2009), and Chan and Ghose (2011).”
Integration of Online and Offline Channels in Retail: The Impact of Sharing Reliable Inventory Availability Information (2014, unknown): “Competition between brick-and-mortar and online channels has been studied by Brynjolfsson et al. (2009) and Forman et al. (2009), among others.”