Pricing strategy of dual-channel retailers based on Hotelling Model

Abstract

E-commerce retailers and traditional retailers implement a new retail model of “online and offline” integration, which is the main direction for the future development and reform of the retail industry. In response to the complex and changing market demand, more and more retailers are beginning to transform into dual-channel retailers. However, in the process of transformation, the following problems will be encountered: how to set the price of products for online channels and offline channels; consumers' acceptance of online channels. In view of the above problems, this paper considers factors such as the degree of consumer acceptance of online channels and the cost of purchasing by consumers. This article studies the competitive situation of different types of retailers in the market, and makes a comparative analysis of the competitive equilibrium of unified pricing and differential pricing strategy when different types of retailers open dual channels. We got three discoveries. First, in the fierce market competition, dual-channel retailers have more competitive advantages than single-channel retailers. Second, for traditional retailers, they can gain more profits and competitive advantages by adopting differential pricing or uniform pricing strategy compared with before the transformation. Finally, the rational choice of e-commerce retailers is to use differential pricing in the transition process, or not to transform to ensure price advantage.