Online-offline channel conflict: a game-theoretic model with application to the automobile industry

Wujin Chu and Hyunsik Kim

International Journal of Automotive Technology and Management, 2006, vol. 6, issue 1, 20-44

Abstract: In this paper, we examine cases where internet channels are of lower cost than traditional channels. Under this assumption, we show that the introduction of the internet channel increases profits for the manufacturer. However, if the internet channel is so efficient as to drive the traditional channel out of the market altogether, it is in the interest of the manufacturer to discriminate its wholesale price by charging a lower wholesale price for the traditional channel. This form of subsidy will keep the traditional channel competitive vis-a-vis the internet channel and ensure that there is fair competition at the retail level.

Keywords: automotive distribution; online-offline channel conflict; coordination mechanism; wholesale price discrimination; automobile industry; internet channels; pricing; profitability; game theory; online retailing; e-tailing. (search for similar items in EconPapers)
Date: 2006
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