E-commerce And The Change In China’s Retail Industry

Retail industry in China has been a few steps behind that in the advanced countries,but has been experiencing another round of change with the spread of the Internet and the E-commerce.In order to understand the way e-commerce promotes the change in China’s retail industy,this research suggests three key questions to be resolved:(1)Based on the microeconomic theory,what effects do e-commerce impose on the equilibria of channel competition and the efficiency of commodity circulation?(2)How does e-commerce induce the transition of retail modes in China?(3)How do e-commerce change consumers’ consumption behavior or pattern in China?In order to answer the above three questions,this work,based on the relative literature and characteristics of retail industy in China,establishes a theoretical framework to analyse the way search costs,switch costs,product uncertainty and multi-channel retailing strategies affect the equilibria of channel competition,which is followed by several empirical analyses to test the theoretical hypotheses.The main work and findings are as follows:First,e-commerce and equilibria of channel competition:By establishing a consumers’ channel selection model based on search costs,consumers’ switching costs and product search-like attributes,the work sequentially analyzes the strategic behavior of online and offline retailers in "cannibalization model","joint model" and“synergy model",and finds that:(1)E-commerce saves search cost for online buyers,which increases the market efficiency,but offline retail channel coexists with online channel due to offline search cost and switch cost,inducing price distortion in online channel and window shopping,both of which decrease market efficiency;(2)the rapid expansion of online retail does not stem merely from low pricing;higher search costs or standardisation level of products will increase online price and reduce window shopping while increasing direct online shopping,which contributes to retail efficiency;(3)offline retailers can make use of their incumbency advantage to encourage window shopping,which harm the retail efficiency.(4)Multi-channel retail can enhance the online retailer’s pricing ability without cutting offline price,restrain consumers from window shopping,and save consumers,search cost and the offline retailer’s circulation cost,all of which can increase retail efficiency,retailers’ profits and social welfare.(5)Due to adverse selection,retailers tends to sell products of rather high quality offline exclusively,those of rather low quality online exclusively,and only those of medium quality both online and offline.(6)Synergy between channels aims at mitigating product uncertainty online and reducing consumers’ switch costs so that efficiency of commodity circulation can be improved;synergy model can make retailers better off if the regional market is with a medium offline search cost,or the product is with a rather high or extremely low degree of uncertainty;compared with selling online exclusively,channel synergy can enlarge the demand for products of rather low expected value,named "market expansion effect",and enhance the price for products of extremely high expected value,named "price increase effect";Higher degree of channel synergy enlarges consumer surplus especially online and expands demand for online channel,which increases the retailer’s profit and social welfare.Second,e-commerce and the transition of retail modes in China:Extending on the theoretical framework,this work proposes that "search economy" and "channel stickiness" are both key factors,and finds that an online retailer has an incentive to switch from "cannibalization model" to "joint model" to increase her price and market share,and an incentive to adopt "synergy mode" to promote products with high product uncertainty and a large switch cost;thus,it is e-commerce which promotes transition of retail modes.Then,based on the online-offline consumption data in Zhejiang,we proved that retailers in China have widely adopted the "joint model" and started some trials of "synergy model".Also,E-commerce in the cities in Zhejiang expands at a higher speed in 2017,and "synergy model" endows certain cities with a new source of e-commerce growth.Last,e-commerce and change of the purchase behavior of consumers in China:The internet-based electronic commerce environment provides consumers with a new channel for consumer purchasing products or services as well as some new mechanism for consumer searching for product information.By collecting transaction data of washing machines on taobao.com,we then establish three empirical models,treating products’ visitors per store per day,orders’ transaction status and products’ conversion rates per store per day as dependent variables respectively,to test all the hypotheses derived from the theoretical framework.We find that:(1)Offline search cost can enhance a consumer’s online purchase incentive,and this mechanism imposes stronger effect on relative high-valued products;at the same time,online search cost will reduce the consumer’s incentive to purchase a low-valued product and the incentive to search in the next store about a high-valued product;hence,the effect of online search cost on a consumer’s purchase incentive will change from negative to positive.(2)Product quality information increase a consumer’s purchase incentive,especially for the stores with higher reputation levels,but this mechanism marginally diminishes.(3)Stores’ reputation significantly influences consumers’ decision of which store to search first and whether to purchase in this store,and this mechanism will strengthen as the value of a product increases.(4)Price can hold consumers back from searching or purchasing the product in the store,and this impact will decrease as a product’s value gets higher.Above all,due to e-commerce,consumers in China tend to purchase products of higher quality or value online,indicating the consumption pattern has switched from price-oriented towards quality-oriented.This research contributes innovation to the existing literature from three aspects:(1)a new theoretical framework which assumes products on both channels are totally the same and focuses on the impact of channel differences on consumers’/retailers’ strategies of channel selection,and divides shopping behavior into two stages-"search" and "purchase,"-which allows retailers behave strategically in each stage.(2)New research perspectives and thus new machenism,including analyzing the transition of e-commerce development model from the perspective of offline search costs and switch costs,and exploring the key factors of online shopping behavior from the perspective of online search behavior.(3)A new index called"e-commerce impact" which measures the market power of e-commerce in an area and new data-transaction data from Taobao.com-which reflects China’s consumption pattern at micro-level.This work provides fruitful insights into the way E-commerce enhances the efficiency of commodity circulation and that promotes the change of retail industry in China,which is of great significance theoretically,realistically,and politically.