Expanding to the Internet: Pricing and Communications Strategies When Firms Compete on Multiple Channels*

This paper shows how firms’ pricing and communications strategies may be affected by size of the Internet: firms have incentives to facilitate consumer search on the Internet, but only as long as the Internet's reach is limited. As the Internet is used by more consumers, firms’ pricing and communications strategies on the Internet will mirror the strategies they pursue in a conventional channel. Firms can increase their market power by strategically using information on multiple channels to achieve finer consumer segmentation. The paper suggests directions the Internet might take and derives managerial implications. The findings generalize to other channels that allow firms to segment consumers and enable firms to inform consumers at low cost.