Build or Rent? An Economic Analysis of Electronic Mall Competition and Roles of Cyber-mediaries

Abstract

We present a stylished model of duopoly of e-tailing competition that integrates price and e-advertising decision. Under the significant investment to build a sites identity on the Cyberspace, firms may use some well-established cyber-mediaries rather than building their own new e-stores. From the Nash equilibria of this game, we derive the conditions of firms optimal strategies of choice of distribution. Nash equilibria can be characterised by the relative brand-identities to that of emall, and substitutibility of the products. The intensity of price competition is positively related to the emalls profit. However, the higher degree of price competition at the same site diminishes a producers incentive to join the mall. We also discuss the impacts of other forms of cyber-mediaries such as portal service with banner ads price comparison agents.