Competitors or frenemies? Strategic investment between competing channels. (August 2022)

• Record Type: Journal Article
• Authors: Yan, Nina; Liu, Yang; Chen, Jing
• Is Part Of: Transportation research. Volume 164(2022)
• Publication Date: 2022-08
• Subjects: Duopoly competition -- Investment strategy -- Pricing -- Game theory; Logistics -- Periodicals; Transportation -- Periodicals; 388.011
• DOI: 10.1016/j.tre.2022.102784
• Languages: English
• ISSNs: 1366-5545

Abstract

Highlights: We examine cross-investment strategy in a duopoly setting. Impacts of investment on leadership structure, prices, and profits are investigated. Investor will choose to invest in investee if the investee's value is medium. Leadership decision depends strongly on relative initial values of two retailers. A more efficient retailer is a leader in setting price first under no investment. Abstract: It is increasingly common for an online retailer to invest in a competitor offline retailer, or vice versa. In order to identify the conditions under which this type of cross-investment in a competitor is attractive, we develop a duopoly model with an e-tailer and a brick-and-mortar (BM) retailer, and ask when, or whether, one member of the duopoly should invest in the other. The impact of the investment decision on the duopoly's leadership structure, prices, demands, and profits are investigated. Our study shows that the investor chooses to invest in the investee when the investee's value is medium; the investment can weaken the price competition between the two channels, and lead to a win-win outcome. When there is no cross-channel investment, the member of the duopoly that is more efficient in selling the product should take the leadership role by setting the selling price first. When one member of the duopoly does decide to invest in the other, however, the leadership decision depends strongly on the relative initial values of the two retailers. Finally, we show that when the initial value of the investee as estimated by the investor is sufficiently low, and the customer's degree of acceptance of the e-tailer's channel is sufficiently high, the investor prefers to be an investment holder; otherwise, the investor prefers to receive a dividend.