Will Online Shopping Compete More with Traditional Retailing or Catalog Shopping?

Authors:
Michael R. Ward
Affiliations:
Department of Agricultural and Consumer Economics, University of Illinois, Urbana-Champaign, 1301 W. Gregory Dr., MC-710, Urbana, IL 61801, USA ward1@uiuc.edu
Venue:
Netnomics
Year:
2001

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Abstract

This paper examines consumer substitution behavior among three distribution channels: online shopping, traditional retail and catalog shopping. A model of consumer transactions costs is presented in which consumer investments in shopping human capital determine distribution channel choice. This model predicts that consumers who make investments that “spillover” to multiple channels will tend to have lower transactions costs for those two channels and will tend to consider these two channels to be closer substitutes than other channels. The model implies that, even if these investments are not measured, they will represent a component of the regression models' residual terms, which will predict distribution channel choice. I test this implication using the GVU Center's survey data on channel selection for various product categories. The results strongly suggest that consumers consider online shopping and catalog shopping to be closer substitutes than any other pair of channels.