On firm choice between online and physical markets
نویسندگان
چکیده
Consumers buying goods online often cannot physically inspect the products prior to purchase. Thus an online market may turn what is usually regarded as a search good into an experience good. We investigate how this feature, together with other features of the marketplace, a¤ects a rms choice between online and physical markets. Using a simple yet exible framework, we show that the choice of a marketplace can be used to disclose or hide product quality. If the production cost is convex with respect to quality, the rms choice will be characterized by a cuto¤ quality level, below which the rm will choose the online market, and above which the rm will choose the physical market. However, if the production cost of quality is concave, there are situations where the highest qualities pool with the lowest ones in the online market, leaving the physical market to intermediate qualities.
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