Journal of Korean Institute of Industrial Engineers (대한산업공학회지)

Korean Institute of Industrial Engineers (대한산업공학회)
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Strategic Analysis of the Competition between Internet Seller and Conventional Retailer Selling Single Commodity

단일 상품을 판매하는 인터넷 상점과 전통적인 소매점 간의 경쟁에 대한 전략적 분석

  • Cho, Hyung-Rae (Dept. of Industrial Systems Engineering, Gyeongsang National University) ;
  • Kwon, Hyo-Seok (Dept. of Industrial Systems Engineering, Gyeongsang National University) ;
  • Cha, Chun-Nam (Dept. of Industrial Systems Engineering, Gyeongsang National University)
  • 조형래 (경상대학교 공과대학 산업시스템공학부) ;
  • 권효석 (경상대학교 공과대학 산업시스템공학부) ;
  • 차춘남 (경상대학교 공과대학 산업시스템공학부)
  • Published : 2005.12.30
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Abstract

The proliferation of the internet technologies and applications has intensified business activities on the Internet. This study considered the price competition between two shopping channels, one on-line seller and the other traditional off-line retailer. Based on the Hotelling's linear market model, we derive the Nash and Stackelberg equilibria as a function of the cost parameters which represent the characteristics of the online and off-line channels. By analyzing the equilibrium solutions, the following significant findings were obtained. First, pricing by Stackelberg equilibrium always outperformed that of Nash equilibrium. However the value of the cost parameters played a crucial role in determining both channels' preferred position (price leader or follower). Second, the online seller could benefit more in terms of profit by lowering its efficiency when its efficiency belongs to a certain interval. Third, when the online seller's efficiency is low, lowering its delivery cost has no contribution to its profit. To benefit more from lowering its delivery cost, increasing its channel efficiency to a certain level should be preceded.

Keywords

References

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