Shopping Versus Shipping: A Spatial Competition Theory of E-commerce

Toshitaka Gokan, Jacques-François Thisse and Xiwei Zhu
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Jacques-François Thisse: Université catholique de Louvain, LIDAM/CORE, Belgium

No 2026009, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: Online retailers compete not only on price but also on delivery performance, making logistics a central issue in the structure of the retail industry. Online retailers may choose either a uniform delivered price or location-specific delivered prices, whereas offline retailers rely on uniform mill pricing. Using a game-theoretic model that incorporates shopping costs, shipping costs, distaste costs, and consumer taste heterogeneity, we characterize the equilibrium structure of the retail industry. The existence of equilibrium critically depends on the degree of taste heterogeneity. An offline retailer chooses to move online when distaste or shipping costs are sufficiently low. However, firms become trapped in a Prisonerís Dilemma when both adopt uniform delivered pricing. When both firms operate as e-retailers, they engage in a Game of Chicken and soften price competition by adopting di§erent pricing formats. We also describe the evolution of the retail industry from conventional retailing to personalized pricing as distaste and shipping costs decline.

Keywords: Offline retailing; online retailing; spatial price policies (search for similar items in EconPapers)
JEL-codes: L13 L81 R10 (search for similar items in EconPapers)
Pages: 42
Date: 2026-05-26
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