Offline expansion strategy of E-tailers as suppliers for brick-and-mortar stores

Abstract

E-commerce giants have recently ventured into offline retail by serving as suppliers for brick-and-mortar stores. In this paper, we develop a game-theoretical model to investigate the economic rationale behind the strategy and its impacts on online and offline retail. We find that an offline monopolist will always have an incentive to participate in the e-tailer's offline expansion initiative, but may be deterred due to competition. Under certain conditions, the e-tailer prefers supplying third-party retailers over opening its own store.