Note on self-restraint as an online entry-deterrence strategy

Yunchuan Liu, Sunil Gupta, Z. John Zhang

Research output: Contribution to journalArticlepeer-review

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.

Original languageEnglish (US)
Pages (from-to)1799-1809
Number of pages11
JournalManagement Science
Volume52
Issue number11
DOIs
StatePublished - Nov 1 2006

Keywords

  • Channel management
  • Game theory
  • Market entry
  • Multichannel retailer
  • Pricing

ASJC Scopus subject areas

  • Strategy and Management
  • Management Science and Operations Research

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