Internet coverage rate and traditional retailers

摘要

With the rapid development of the internet, an important strategic impact on online and traditional retailers is the internet coverage rate in a market population, especially in some rapidly developing countries, such as China, India, etc. where a growing population is within the reach of the internet. In this study, we focus on the role played by the internet coverage rate in a market population, and the competition it caused between online markets and traditional brick-and-mortar retailers. We use a game theoretic approach to examine the effect of internet coverage rate on the prices and profits of online and traditional retailers. In particular, we examine this problem under the Stackelberg competitive setting, as this model captures the essence of most of the competition on the web. First, we obtain the optimal prices, demands, and profits under this model. And then we run comparative statistics to determine policy decisions. Based on our results, we propose the appropriate strategy for the online and traditional retailers to adopt in a Stackelberg competitive market.