Showrooming and Shipping Costs in Price Competition between Online and Physical StoresShowrooming and Shipping Costs in Price Competition between Online and Physical StoresAN10367370 Showrooming and Shipping Costs in Price Competition between Online and Physical Stores
Today, consumers purchasing goods can choose between physical stores (or "brick-andmortar"stores) and online stores (or e-tailers). If a consumer purchases an unfamiliar good online, she is likely to receive a mismatched good. On the other hand, consumers who purchase goods from a physical store must incur the transportation costs and the shipping costs while major online stores generally do not pass on shipping charges to the consumers. Facing this dilemma, some consumers might go to a physical store for reducing mismatch; subsequently, they purchase the product from an online store to avoid the shipping charges. Such free-riding behavior of consumers is referred to as showrooming . This article analyzes showrooming and its effect on price competition between physical stores and online stores by formulating a spatial market model, and we show that one of two types of equilibrium might exist in the price competition, where some consumers display showrooming and others do not. In the model, we emphasize the role of shipping costs incurred by consumers only when they purchase goods from physical stores, which would determine the equilibrium that arises. In conclusion, both physical stores as well as online stores charge lower prices and obtain lower profits in equilibrium with showrooming than they do in equilibrium without showrooming.