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Analysis of Price Competition between B&M and C&M Suppliers  

Cho, Hyung-Rae (Department of Industrial Systems Engineering, Gyeongsang National University)
Yu, Jung-Sub (Department of Industrial Systems Engineering, Gyeongsang National University)
Cha, Chun-Nam (Department of Industrial Systems Engineering, Gyeongsang National University)
Publication Information
Journal of Korean Institute of Industrial Engineers / v.28, no.4, 2002 , pp. 379-389 More about this Journal
Abstract
In this paper, we study the competition between two kinds of suppliers, a bricks and mortars(B&M) and a clicks and mortars(C&M). Using the circular spatial market model, we derive and analyze the Nash and Stackelberg equilibria as a function of offline market share and efficiency of online channel of the C&M supplier. The result can be summarized as follows: (1) Stackelberg equilibrium is always superior to the Nash equilibrium, (2) Under certain conditions, the price of online channel can be higher than that of offline channel, (3) It is impossible for the C&M supplier to encroach on all of the B&M supplier's market, (4) In some cases, the C&M supplier has incentive to lower the efficiency of its online channel for more profit.
Keywords
price competition; bricks and mortars; clicks and mortars; circular spatial market model; nash equilibrium; stackelberg equilibrium;
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