Competitors or frenemies? Strategic investment between competing channels

Nina Yan, Yang Liu and Jing Chen

Transportation Research Part E: Logistics and Transportation Review, 2022, vol. 164, issue C

Abstract: It is increasingly common for an online retailer to invest in a competitor offline retailer, or vice versa. In order to identify the conditions under which this type of cross-investment in a competitor is attractive, we develop a duopoly model with an e-tailer and a brick-and-mortar (BM) retailer, and ask when, or whether, one member of the duopoly should invest in the other. The impact of the investment decision on the duopoly’s leadership structure, prices, demands, and profits are investigated. Our study shows that the investor chooses to invest in the investee when the investee’s value is medium; the investment can weaken the price competition between the two channels, and lead to a win-win outcome. When there is no cross-channel investment, the member of the duopoly that is more efficient in selling the product should take the leadership role by setting the selling price first. When one member of the duopoly does decide to invest in the other, however, the leadership decision depends strongly on the relative initial values of the two retailers. Finally, we show that when the initial value of the investee as estimated by the investor is sufficiently low, and the customer’s degree of acceptance of the e-tailer’s channel is sufficiently high, the investor prefers to be an investment holder; otherwise, the investor prefers to receive a dividend.

Keywords: Duopoly competition; Investment strategy; Pricing; Game theory (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1366554522001740
Full text for ScienceDirect subscribers only

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:eee:transe:v:164:y:2022:i:c:s1366554522001740

Ordering information: This journal article can be ordered from
http://www.elsevier.com/wps/find/journaldescription.cws_home/600244/bibliographic
http://www.elsevier. ... 600244/bibliographic

DOI: 10.1016/j.tre.2022.102784

Access Statistics for this article

Transportation Research Part E: Logistics and Transportation Review is currently edited by W. Talley

More articles in Transportation Research Part E: Logistics and Transportation Review from Elsevier
Bibliographic data for series maintained by Catherine Liu ().