tailieunhanh - Online vs. Offline Competition* Prepared for the Oxford Handbook of the Digital Economy

Amazonis arguably one of the most successful online firms. As of this writing, its market value is over $79 billion, 40 percent higher than the combined value of two large and successful offline retailers, Target and Kohl’s, who have 2800 stores between them. Jeff Bezos conceived of Amazon as a business model with many potential advantages relative to a physical operation. It held out the potential of lower inventory and distribution costs and reduced overhead. Consumers could find the books (and later, other products) they were looking for more easily, and a broader variety could be offered for sale in the. | Online vs. Offline Competition Prepared for the Oxford Handbook of the Digital Economy Ethan Lieber University of Chicago elieber@ Chad Syverson University of Chicago and Booth School of Business and NBER January 2011 We thank Martin Peitz and Joel Waldfogel for comments. Syverson thanks the NSF and the Stigler Center and Centel Foundation Robert P. Reuss Faculty Research Fund at the University of Chicago Booth School of Business for financial support. Lieber Department of Economics University of Chicago 1126 E. 59th St. Chicago IL 60637 Syverson University of Chicago Booth School of Business 5807 S. Woodlawn Ave. Chicago IL 60637. 1. Introduction Amazonis arguably one of the most successful online firms. As of this writing its market value is over 79 billion 40 percent higher than the combined value of two large and successful offline retailers Target and Kohl s who have 2800 stores between them. Jeff Bezos conceived of Amazon as a business model with many potential advantages relative to a physical operation. It held out the potential of lower inventory and distribution costs and reduced overhead. Consumers could find the books and later other products they were looking for more easily and a broader variety could be offered for sale in the first place. It could accept and fulfill orders from almost any domestic location with equal ease. And most purchases made on its site would be exempt from sales tax. On the other hand Bezos no doubt understood some limitations of online operations. Customers would have to wait for their orders to be received processed and shipped. Because they couldn t physically inspect a product before ordering Amazon would have to make its returns and redress processes transparent and reliable and offer other ways for consumers to learn as much about the product as possible before buying. Amazon s entry into the bookselling market posed strategic questions for brick-and-mortar sellers like Barnes