Does the coexistence of online and offline firms improve welfare?

Xiwei Zhu and Gokan Toshitaka

No 814, IDE Discussion Papers from Institute of Developing Economies, Japan External Trade Organization(JETRO)

Abstract: This study shows how the coexistence of online and offline firms affectsconsumer welfare. By introducing two dimensions of heterogeneity inproductivity and quality, we find that the consumers' indirect utility under thecoexistence of online and offline firms is higher than that of only offline firms.Specifically, we show that: (1) if the initial investment of online firms is smallenough or if the initial investment of offline firms is large enough, or (2) if thefixed costs of offline firms are sufficiently large under the general distribution ofproductivity and quality. Additionally, we find that the cutoff productivity levelof domestic online firms increases due to the cost-saving of the fixed costsamong online exporting firms, leading to the higher indirect utility compared tothe indirect utility without cost-saving.

Keywords: Heterogeneous firms; Online; Offline (search for similar items in EconPapers)
JEL-codes: D04 R12 (search for similar items in EconPapers)
Date: 2021-03
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Published in IDE Discussion Paper = IDE Discussion Paper, No. 814. 2021-03

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