The overall objective of this program of research is to develop a model of Internet-induced channel competition. In this paper, we focus on the ways in which retail channel technology—specifically, the online vs. bricks and mortar stores—affects the feasible trade-offs that firms can make between price and desirable attributes of their product/service bundles. This paper treats products as a bundle of the physical good and the fulfillment or transaction technology, and proposes a model of competition in the price-attribute space to illustrate the tradeoffs for consumers and producers. This model is grounded in demand, production, and hedonic theory, and relates the attributes (or “quality”) of products to their observed prices. Our objectives in future research are to refine the analytical model and to find evidence that (1) the functional forms assumed in the model are consistent with the price/attribute trade-offs observed in practice and (2) the observed competitive responses of firms dominated by online competitors are consistent with those prescribed by our model.
Chwelos, Paul and Brydon, Michael, "Clicks vs. Bricks: Toward a Model of Internet-Induced Channel Competition" (2000). ICIS 2000 Proceedings. 53.