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The shop around the corner in the Internet age1

Published online by Cambridge University Press:  09 January 2015

Jérôme Foncel ,
Marianne Guyot  and
Frédéric Jouneau-Sion
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Summary

We study a spatial competition model which is a variant of the celebrated Hotelling (1929) framework. One of the firm is a brick-and-mortar one while the other is on-line. Both firms sell the same product except that (constant) marginal costs may differ. Consumers going to the shop around the corner face transportation costs according to their adress whereas on-line consumers bear a fix cost that may capture technological burden and risk premium. In the pricing Nash equilibria the “new economy” firm has smaller market shares eventhough it offers more attractive prices. For the on-line firm to become a leader, the cost difference must be large enough to offset the comparative disadvantage it face on the demand side. In the long run, increasing competition ultimately forces the local firm out of downtown. We argue that this effect may be related to some of the forecasts concerning the geographical impact of the development of remote access services.

Nous étudions un modèle de compétition spatiale inspiré de Hotelling (1929). L'une des firmes est localisée alors que l'autre est présente uniquement sur internet. Elles vendent le même produit et seuls les coûts marginaux – supposés constants – peuvent différer. Les clients de la firme traditionnelle supportent un coût de transport variable selon leur adresse, alors que les clients en ligne supportent un coût fixe qui peut rendre compte de difficultés d'accès à la technologie ou d'une prime de risque. Nous montrons que les équilibres de Nash en prix laissent une part de marché souvent faible à la firme en ligne, bien qu'elle pratique un prix plus bas. Il faut que les différences de coûts de production soient suffisamment importantes pour que la firme en ligne devienne leader. À long terme, nous montrons qu'il est optimal pour la firme traditionnelle de quitter le centre-ville si la concurrence d'Internet devient trop rude. Nous mettons cette prévision en relation avec les réflexions actuelles sur la place des technologies à distance dans le développement urbain.

Keywords

Spatial competitioneconomic geographyE-marketingR12L86L11Compétition spatialeéconomie géographiqueE-marketingRI2L86LU
Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 77 , Issue 2-3 , September 2011 , pp. 47 - 85
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 2011 

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Footnotes

2

GREMARS, Université Lille 3

3

GREMARS, Université Lille 3 and CORE, Université Catholique de Louvain

1

We are grateful to François Nibart, Régis Renault, Isabel Grilo and Gérard Hamiache for very helpful comments on this work. Comments by the referees and the editor were especially helpful in improving the paper. All remaining errors are ours alone.

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