[7] Merger Across Channels and Multichannel Strategies-with Jong Jae Lee,
The Korean Journal of Industrial Organization, Mar.2025, 33(1), pp.1-22
[Abstract]
This article studies how the merger that integrates online and offline channels affects competition, particularly multichannel strategies of the merged firm, when an online store competes with two offline stores located on the Hotelling line. By merging the online store to become multichannel, an offline store finds it profitable to significantly mark up prices in both channels, particularly more in the offline channel. The higher post-merger prices shift the market share toward the opponent and raise its profit. However, we find that this merger does not guarantee higher profits from both channels. If shopping costs are lower online than offline, the multichannel retailer prioritizes the profit from online channel at the expense of that from offline by widening the price gap between the offline and online prices. Otherwise, a prohibitively high online shopping costs makes the retailer find the online channel no longer profitable thereby leading to the so-called killer acquisition.
This article studies how the merger that integrates online and offline channels affects competition, particularly multichannel strategies of the merged firm, when an online store competes with two offline stores located on the Hotelling line. By merging the online store to become multichannel, an offline store finds it profitable to significantly mark up prices in both channels, particularly more in the offline channel. The higher post-merger prices shift the market share toward the opponent and raise its profit. However, we find that this merger does not guarantee higher profits from both channels. If shopping costs are lower online than offline, the multichannel retailer prioritizes the profit from online channel at the expense of that from offline by widening the price gap between the offline and online prices. Otherwise, a prohibitively high online shopping costs makes the retailer find the online channel no longer profitable thereby leading to the so-called killer acquisition.