In this paper, we first develop a game theoretic model of price competition between a pure play e-tailer and a bricks-and-clicks e-tailer. We show that in general, the pure play e-tailer has a lower equilibrium price. We then develop a simultaneous equation model of e-tailer price and traffic and estimate this model using data collected from 905 e-tailers across eight product categories. The empirical results show that after controlling for the effects of other variables, prices at pure play e-tailers are generally lower. E-tailers with high traffic do not always command higher prices. E-tailers with high level of reliability, shopping convenience, and deep information, generally do not generate high web traffic and do not enjoy high prices. However, trust enhances e-tailer traffic and early online entry is associated with both high e-tailer traffic and high prices.
Pan, X., Shankar, V. and Ratchford, B.T. (2002), "Price competition between pure play versus bricks-and-clicks e-tailers: Analytical model and empirical analysis", Baye, M.R. (Ed.) The Economics of the Internet and E-commerce (Advances in Applied Microeconomics, Vol. 11), Emerald Group Publishing Limited, Bingley, pp. 29-61. https://doi.org/10.1016/S0278-0984(02)11027-3
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