Note on Self-Restraint as an Online Entry-Deterrence Strategy

Yunchuan Liu (), Sunil Gupta () and Z. John Zhang ()
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Yunchuan Liu: College of Business, University of Illinois at Urbana-Champaign, 1206 South Sixth Street, Champaign, Illinois 61820
Sunil Gupta: Harvard Business School, 179 Morgan Hall, Soldiers Field, Boston, Massachusetts 02163
Z. John Zhang: The Wharton School, University of Pennsylvania, 700 Jon M. Huntsman Hall, 3730 Walnut Street, Philadelphia, Pennsylvania 19104-6340

Management Science, 2006, vol. 52, issue 11, 1799-1809

Abstract: We develop a game-theoretical model to show that in the markets where price consistency across channels is critical, an incumbent brick-and-mortar retailer can deter the online entry of a pure-play e-tailer by strategically refraining from entering online. In the markets where price consistency is not a constraint, we find that the incumbent can deter the e-tailer's entry only if it enters online and credibly operates the online channel as an independent profit center. In other words, the incumbent must be willing to cannibalize its own brick-and-mortar business by charging a low online price. We also discuss some social welfare implications of retail online entry and the managerial insights of our analysis.

Keywords: multichannel retailer; channel management; pricing; market entry; game theory (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (32)

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