How does online shopping affect offline price sensitivity?

Shirsho Biswas, Hema Yoganarasimhan and Haonan Zhang

Papers from arXiv.org

Abstract: The rapid rise of e-commerce has transformed consumer behavior, prompting questions about how online adoption influences offline shopping. We examine whether consumers who adopt online shopping with a retailer become more price-sensitive in their subsequent offline purchases with that retailer. Using transaction-level data from a large Brazilian pet supplies retailer operating both online and offline, we compare ''adopters'' - customers who began shopping online after a period of offline-only purchasing - with ''non-adopters'' who remained offline-only. We estimate a discrete choice logit model with individual-level heterogeneity, using a novel algorithm to handle high-dimensional fixed effects and address price endogeneity. We then apply a staggered difference-in-differences approach to the estimated price elasticities and obtain the Average Treatment Effect on the Treated (ATT). We find that offline price sensitivity increases significantly after online adoption in three out of four product categories, particularly in items with low switching costs, such as pet hygiene. Counterfactual pricing simulations show that incorporating these behavioral spillovers into pricing strategies can increase firm profits by up to 4.1%. These results underscore the importance of recognizing cross-channel effects in consumer behavior and contribute to the literature on pricing and multichannel retailing by identifying online adoption as a key driver of offline price sensitivity.

Date: 2025-06
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