"Bricks-and-mortar" vs. "clicks-and-mortar": An equilibrium analysis

Journal Article (Journal Article)

The Internet has provided traditional retailers a new means with which to serve customers. Consequently, many "bricks-and-mortar" retailers have transformed to "clicks-and-mortar" by incorporating Internet sales. Examples of companies making such a transition include Best Buy, Wal-Mart, Barnes & Noble, etc. Despite the increasing prevalence of this practice, several fundamental questions remain: (1) Does it pay off to go online? (2) Which is the equilibrium industry structure? (3) What is the implication of this business model for consumers? We study these issues in an oligopoly setting and show that clicks-and-mortar arises as the equilibrium channel structure. However, we find that this equilibrium does not necessarily imply higher profits for the firms: in some cases, rather, it emerges as a strategic necessity. Consumers are generally better off with clicks-and-mortar retailers. If firms align with pure e-tailers to reach the online market, we show that a prisoner's dilemma-type equilibrium may arise. © 2006 Elsevier B.V. All rights reserved.

Full Text

Duke Authors

Cited Authors

  • Bernstein, F; Song, JS; Zheng, X

Published Date

  • June 16, 2008

Published In

Volume / Issue

  • 187 / 3

Start / End Page

  • 671 - 690

International Standard Serial Number (ISSN)

  • 0377-2217

Digital Object Identifier (DOI)

  • 10.1016/j.ejor.2006.04.047

Citation Source

  • Scopus