2018 Fiscal Year Research-status Report
Online vs. Offline Competition and Consumer Search: A Theoretical Approach
| Project/Area Number |
18K12767
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| Research Institution | Nagoya University of Commerce & Business |
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Principal Investigator |
PAN CONG 名古屋商科大学, 経済学部, 講師 (30807425)
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| Project Period (FY) |
2018-04-01 – 2021-03-31
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| Keywords | Online vs. Offline / Consumer Heterogeneity / Consumer Search / Welfare / Delegation |
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| Outline of Annual Research Achievements |
In my first year, I successfully modeled consumers’ heterogeneity to the benchmark model of online vs. offline competition. Two related papers were published by peer-reviewed journals. One paper is about how consumers’ heterogeneity in their willingness to pay affects firm’s decision making. The other is about how consumers’ heterogeneity in product varieties affects a manufacturer’s incentive to open its online store and to choose its product line. These two papers, especially the later one, lay a solid basis of my overall project.
During my process, I also encountered the difficulty of simplifying my setting to get closed-form solutions (equilibrium parameter ranges which are tractable). Therefore, in 2019, I still need solve this problem. After that, I can finish this as a new paper.
Despite the above, I came up with some new ideas. Firstly, I found some relationships between firms’ incentives to become managerial (delegating decision-makings to CEOs) and consumers’ heterogeneity in their willingness to pay. I worked with Dr. DongJoon Lee and Dr. Kangsik Choi and developed this idea into a Discussion Paper. Secondly, I and Dr. Noriaki Matsushima and Dr. Tomomichi Mizuno examined a manufacturer’s incentive to develop its online channel under Nash bargaining. We found that the presence of online store can be harmful to social welfare. This result together with some others were summarized by a Discussion paper.
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| Current Status of Research Progress |
Current Status of Research Progress
2: Research has progressed on the whole more than it was originally planned.
Reason
In 2018, I successfully modeled consumers’ heterogeneity to the benchmark model of online vs. offline competition. Two related papers were published in peer-reviewed journals. However, I also encountered some difficulties in my first year’s research process. For example, there was a technical difficulty about how to deal with the model's asymmetry, so there still remains a question about whether my targeting equilibrium is stable and unique. This point will be overcome.
Besides, I came up with some new ideas, which were developed into two new extension projects. One is about how consumers’ heterogeneity in their willingness to pay affects firms’ managerial decisions (joint work with Dr. DongJoon Lee (Osaka Sangyo University) and Dr. Kangsik Choi (Pusan National University)), the other one is about how a manufacturer’s incentive to develop an online channel affects welfare when brick-and-mortar retailer has bargaining power (joint with Dr. Noriaki Matsushima (Osaka University) and Dr. Tomomichi Mizuno (Kobe University)). Both of these two papers are under review by peer-reviewed journals.
Moreover, as planned, some related projects were accepted and presented in peer-reviewed conferences, such as 71st European Meeting of the Econometric Society and 45th Annual Conference of European Association for Research in Industrial Economics. I also visited Professor Kopel in University of Graz.
As denoted in "Summary of Research Achievements," despite some difficulties encountered, some achievements have been reached, so the overall project is progressing rather smoothly.
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| Strategy for Future Research Activity |
In 2019, I will first try to solve the problem encountered in 2018. Then, my third paper should be finished. Besides, at the end of 2018, I found some surprising results that were not expected in my original research plan. That is, in the background where a monopoly manufacturer supplies competing retailers and the contracts are private information, the manufacturer may choose to foreclose all retailers and sell via its own online store only, even if the online store is quite inefficient. This finding contradicts most literature on vertical foreclosure who argues that if the manufacturer is inefficient in retailing than incumbent retailers, there is no risk of foreclosure (Rey and Tirole, 2007). From this sense, the above finding may have a strong impact and provide important implications for both firms’ managers and antitrust authorities. Therefore, in 2019, I will try to publish this paper, possibly in a top journal such as International Economic Review.
The above new idea may also add new insight to the process in modeling consumers’ searching behavior. This is because, the manufacture’s incentive to foreclose brick-and-mortar retailers may be dampened if consumers use brick-and-mortar retailers for showrooming (they try or test goods provided by brick-and-mortar retailers but purchase them from online stores).
Moreover, as raised in my overall research plan, the project about experience products will also be carried out. This will depend on how the problem encountered in 2018 is solved.
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| Remarks |
Two of my projects are jointly carried out with Dr. Michael Kopel (University of Graz) and Kangsik Choi (Pusan National University).
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Research Products
(10 results)
