Internet versus traditional retailing: An address model approach

Using a duopoly address model, this paper examines the effect of product characteristics on firm profitability in traditional and e-commerce settings. When accurate information can be gathered digitally, adequate differentiation will insure online profitability equal to that of traditional retailers. However, when product characteristics require an in-person inspection, the method and cost of search within a traditional retail format will differ from those associated with the internet. The subsequent advantage of one format over the other will depend on the degree of differentiation between the firm's products as well as the feasibility of search.