Competition Between Online and Physical Stores: The Implications of Providing Product Information by Pure-Play E-tailer

This paper studies the competition between a single pure-play e-tailer and a bricks-and-mortar retailer, which are originally spatially differentiated. By utilizing information and communication technology, a pure-play e-tailer can strategically control consumers' disutility for online purchase. However, such an action may also raise consumers' motivation to visit the physical store, which causes free-riding by the bricks-and-mortar retailer. We show that in the presence of a high free-riding effect, the e-tailer should be willing to provide information only about 'niche' products, which also results in improving the welfare of all members in the market.