The Location Mechanism And Response Strategies Of Physical Retailers When Competing Against An Online Retailer

Location is an important strategic decision for physical retailers,which plays a role in shape structure of urban.However,the prosperity of online retailing is an indispensable mode in today’s retailing industry,causing a number of physical retailers close their stores,which is re-location naturally.Physical retailing is a non-negligible component for urban development,re-location of the physical retailing affect the structure of urban,but also relates to strategy of development.In addition,some physical retailers provide service or cross-channel to compete against the online retailing.Therefore,the location of physical retailing when competes with an online retailing is a research point in academy.Actually,the channel-heterogeneous between online and offline changes the spatial dependent and competive mode with the increasing use of online shopping.In this case,the spatial location mechanism changes,yielding different conclusions,affecting the location strategy,channel strategy.From the view of location,the following questions should be solved:(1)Does the online retaileing affect the location behavior of physical retailers and yields closing-trend?(2)How the physical retailers make their location choices when competes against an online retailer?(3)What are the necessary conditions if a subgame perfect Nash equilibrium exists?(4)How do the physical retailers respond to the spatial price competition from online retailing?And how these responses behavior affects the location decision?(5)Whether and how the location strategies of the physical retailers affect the price and social welfare?(6)Whether the reality could reflect the relationship among online retailing and physical retailing?Solving these questions is significant and valuable for us to understand the closing-trend,and therefore,location in an online environment became a hot point in industrial organization.This paper bases on the closing-trend in reality accompanying the competition from online retailing,and inducing an online retailer in Hotelling’s duopoly model,setting up a location-then-price game in different direct market structure and indirect market structure under mixed-oligopoly and traditional duopoly cases.In these two different cases,we analyze the location mechanism of physical retailers when competes against an online retailer.Moreover,we also induce innovation strategy and cross-channel strategy of physical retailer,and explore the relationship between location decisions and respond strategies.As an extend,this paper also construct an empirical model among the transportation cost,disutility cost and the number of physical stores to verify the conclusions from the mathematical model by using the data of GOME and SUNING in our 282 cities in 2018.This paper contains six parts and covers 11 chapters.The first part is Research Questions and Research Framework,which are the first chapter and the second chapter,introducing the reality background and theory background and inducing our research question:The Location Mechanism and Respond Strategies when Physical Retailers Competes against an Online Retailer.Moreover,in this part,we also make a literature review to expound the frontier researches.The second part is the Equilibrium Analysis of Physical Retailers with the Competition from Online Retailer in Duopoly.And this part has there chapters,they are the third chapter,the forth chapter and the fifth chapter.In this part,we set up a model in which two private physical retailers and an online retailer competes in location-then-price in the third chapter.And in the fourth chapter and the fifth chapter,we induce the response strategy of the physical retailer,such as innovation strategy and cross-channel strategy,respectively.In this part,we initially explore the choice in the direct-market-structure and indirect-market-structure,and analyze the spatial location mechanism and the effectiveness of the response strategies.The third part is the Equilibrium Analysis of Physical Retailers with the Competition from Online Retailer in a Mixed-Duopoly.This part is an extension of the second part which includes the sixth chapter,the seventh chapter and the eighth chapter.We induce a public physical retailer who maximizes the social welfare,and analyze the spatial location mechanism and effectiveness of the response strategies.The fourth part is the Location Mechanism Analysis when Two Physical Retailers Competes against an Online Retailer,which contains the ninth chapter.This part is a summary and generation of the second part and the third part,which summary the location conditions and proposes the core mechanism,that is the spatial heterogeneous.The fifth part is the Supply of Location Theory with the Competition from Online Retailer,and it involves the tenth chapter.In this part,we construct an empirical model among transportation cost,disutility cost and the number of physical stores to verify the conclusions from the mathematical model by using the data of GOME and SUNING in our 282 cities in 2018.The sixth part is the Conclusions and Extensions,and it contains the 11th chapter.In this chapter,we summary the research conclusions and propose some feasible extensions.This paper yields the following conclusions:(1)The existence of online retailing does affect the location decision of physical retailers.The equilibrium is exist even through a linear-transport-cost assumption.The traditional spatial location theory points that the location-then-price is unstable,however,this paper shows that the subgame perfect Nash equilibrium is that two physical retailers choose competes in a direct market structure.Actually,online retailer and physical retailer is different in channel characteristic,an obviously difference is that online retailer is spatial-independent while the physical retailers are spatial-dependent.In this case,consumers have to consider the disutility cost when purchasing online while the transportation cost when purchasing offline.So,the existence of online retailing changes the logic of spatial location while yields a subgame perfect Nash equilibrium in a linear-transportation-cost assumption.(2)The only subgame perfect Nash equilibrium is direct market structure and two physical retailers main a fixed distance.Moreover,the spatial location can be a limitless set.Because of the spatial heterogeneous between online retailing and offline retailing,and online retailer plays a role as a low-reservation-price-setter and a demand-invader.In this case,the demand effect and the competition effect are different from traditional theory,and the"minimum-difference" in Hotelling(1929)and "maximum-difference" in D’Aspremont et al.(1979)is useless when two physical retailers competes against an online retailer.Moreover,the results also show that the location equilibrium may diverse,depends on the type of market structure.In the duopoly,the limitless location sets are achieving in I/A/B/I while the only location set exist in I/A/B.In the mixed-duopoly,the only location set appears in I/A/B/I and I/A/B for public physical retailer is a social welfare planner,who maximizes the social welfare.(3)Innovation is an effective response while cross-channel-integration is not an efective mode.Actually,online retailing brings a blocky pressure to physical retailers,especially the location behavior.And physical retailers hunt for effective response strategies,such as,the innovation in service and cross-channel-integration.The results show that only the innovation strategy is an effective response.Intuitively,cross-channel-integration weakens the price competition among the two physical retailers and an online retailer,in this case,the spatial heterogeneous between physical retailer and online retailer is disappearing,which is similar to the traditional theory and no subgame perfect Nash equilibrium existence.(4)The necessary condition of subgame perfect Nash equilibrium is spatial heterogeneous.Our results show that if and only if the spatial heterogeneous between physical retailer and online retailer is disappearing,the subgame perfect Nash equilibrium is exist,and the only market structure is direct market structure.Cross channel integration weakens price competition between physical retailer and online retailer,in this case,the spatial heterogeneous among the two physical retailers and an online retailer is disappearing,and according to the traditional theory and no subgame perfect Nash equilibrium existence.(5)Intuitively,the shock from online retailing comes from the low-price,however,our results show that the price of online channel can be higher than that in physical retailer,depends on the transportation cost and the disutility cost.Actually,the choice of consumers on offline channel and online channel depends on the delivery cost,and they are transportation cost plus price on offline shopping while disutility cost plus price on online shopping.Therefore,when the transportation cost is high and online retailer could make a high price to gain more profits.(6)The effect of disutility cost of online retailer is more serious in GOME than SUNING.And comparing to the transportation cost,the disutility cost is more serious to the number of the offline stores.That is,online retailing does effect on the location behavior of offline retailoring.The convenience of the online retailing decreases the disutility cost,and majority consumers purchase from online channel,which weakens the share of offline.In this case,the physical retailers have to expand to urban edge and increase the spatial distance,and some stores have to drop out from the first-tier city,while some stores re-open in the third-tier city.