Showrooming and Webrooming: Information Externalities Between Online and Offline Sellers

AbstractIn a product market where consumers are open to uninformed purchases, we study competition between a traditional and an online retailer in the presence of showrooming. Several results are obtained. First, showrooming intensifies competition and lowers both firms' profits, thus supporting traditional and online retailers' recent strategy of carrying more exclusive varieties. Second, lowering consumer search costs may aggravate showrooming and decrease the traditional retailer's profits for intermediate search costs. Third, opening an online store expands the demand of the traditional retailer but intensifies competition, thus lowering its profits under certain conditions. Fourth, a return policy by the online retailer alleviates showrooming and relaxes competition but weakly reduces its demand, increasing its profits only for intermediate search costs. The return policy weakly increases the traditional retailer's profits. Fifth, when search cost is not high enough, price matching by the traditional retailer may also intensify competition and hurt its profits. We then examine how webrooming interacts with showrooming. When webrooming resolves partial match uncertainty, it may increase both firms' profits by inducing more consumers to participate.The online appendix is available at https://doi.org/10.1287/mksc.2018.1084.