The shop around the corner in the Internet age

Jérôme Foncel, Marianne Guyot and Frédéric JOUNEAU - Sion
Additional contact information
Jérôme Foncel: Université de Lille 3, Gremars
Marianne Guyot: Université de Lille 3, Gremars
Frédéric JOUNEAU - Sion: Université de Lille 3, GREMARS and Université Catholique de Louvain, CORE

No 2011025, Discussion Papers (REL - Recherches Economiques de Louvain) from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: We study a spatial competition model which is a variant of the celebrated Hotelling (1929) framework. One of the firm is a brick-and-mortar one while the other is on-line. Both firms sell the same product except that (constant) marginal costs may differ. Consumers going to the shop around the corner face transportation costs according to their adress whereas on-line consumers bear a fix cost that may capture technological burden and risk premium. In the pricing Nash equilibria the “new economy” firm has smaller market shares eventhough it offers more attractive prices. For the on-line firm to become a leader, the cost difference must be large enough to offset the comparative disadvantage it face on the demand side. In the long run, increasing competition ultimately forces the local firm out of downtown. We argue that this effect may be related to some of the forecasts concerning the geographical impact of the development of remote access services.

Keywords: spatial competition; economic geography; E-marketing (search for similar items in EconPapers)
JEL-codes: L11 L86 R12 (search for similar items in EconPapers)
Pages: 39
Date: 2011-09-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://sites.uclouvain.be/econ/DP/REL/2011025.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvre:2011025

Access Statistics for this paper

More papers in Discussion Papers (REL - Recherches Economiques de Louvain) from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) Place Montesquieu 3, 1348 Louvain-la-Neuve (Belgium). Contact information at EDIRC.
Bibliographic data for series maintained by Sebastien SCHILLINGS ().