Research Summary
Research Summary
Bricks and Clicks: The Effect of Store Assortment on E-tail Format (with R. Lal and E. Ofek)
Description
An often neglected aspect in existing studies of the Internet selling process is the high volume of product returns. Such returns reflect a major logistic expenditure on behalf of companies that sell over the net. The problem is reduced when consumers shop in physical stores because of the ability to inspect products prior to purchase. We model the reduction in product return probability by consumers as function of the level of in-store product assortment (i.e. while such store visits are costly to consumers, the greater level of in-store product assortment the higher the probability the consumer finds the product that fits his/her needs). Broadly, a retailer can choose between traditionally selling in physical stores locations only ('Bricks and Mortar'), over the internet only ('Clicks') or through a combination of the two ('Bricks and Clicks'). The goal of this project is to understand how in-store product assortment, with more assortment being costly to the firm, affects the selling format selected by profit seeking firms under monopoly and competitive conditions. In particular, we identify conditions (relating to the cost of store visits, the cost of returns to consumers and to firms) under which firms will choose the same selling format vs. conditions where an asymmetry in the choice of format is likely to emerge. We also highlight the comparative statics of equilibrium product assortment level (when at least one firm chooses to have store presence) and of equilibrium prices.