Distribution Channel Management in the Internet Age: Equilibrium and Social Welfare

Abstract

Using a spatial competition model, this paper considers the conditions under which a monopoly manufacturer will introduce an e-channel, and its effect on consumer surplus and social welfare. We find that the e-channel will be introduced only if the transportation cost is high and the delivery cost is low. Second, if only some of the consumers buy the good from the retail outlets and the delivery cost is certainly high, the introduction will not decrease any consumer's surplus and the Pareto efficiency can be realized. Third, the social welfare will be improved when the delivery cost is low.