 On firm choice between online and physical marketsYijuan Chen, Xiangting Hu () and Sanxi Li () ANU Working Papers in Economics and Econometrics from Australian National University, College of Business and Economics, School of Economics Abstract: Consumers buying goods online often cannot physically inspect the products prior to purchase. Thus an online market may turn what is usually regarded as a search good into an experience good. We investigate how this feature, together with other features of the marketplace, affects a firms choice between online and physical markets. Using a simple yet flexible framework, we show that the choice of a marketplace can be used to disclose or hide product quality. If the production cost is convex with respect to quality, the firm's choice will be characterized by a cutoff quality level, below which the firm will choose the online market, and above which the firm will choose the physical market. However, if the production cost of quality is concave, there are situations where the highest qualities pool with the lowest ones in the online market, leaving the physical market to intermediate qualities. JEL-codes: D83 L15 (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:acb:cbeeco:2014-619 Access Statistics for this paper More papers in ANU Working Papers in Economics and Econometrics from Australian National University, College of Business and Economics, School of Economics Contact information at EDIRC. |
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