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Wine Online: Search Costs Affect Competition on Price, Quality, and Distribution

 

A fundamental dilemma confronts retailers with stand-alone sites on the World Wide Web and those attempting to build electronic malls for delivery via the Internet, online services, or interactive television (Alba et al. 1997). For consumers, the main potential advantage of electronic shopping over other channels is a reduction in search costs for products and product-related information. Retailers, however, fear that such lowering of consumers’ search costs will intensify competition and lower margins by expanding the scope of competition from local to national and international. Some retailers’ electronic offerings have been constructed to thwart comparison shopping and to ward off price competition, dimming the appeal of many initial electronic shopping services. Ceteris paribus, if electronic shopping lowers the cost of acquiring price information, it should increase price sensitivity, just as is the case for price advertising...

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