The purposes of the study are summarized into two issues. The first issue is an analysis of price competition between the offline and online markets and the second issue is an analysis of business strategies in electronic commerce.
The first purpose of this thesis is, through analytical and empirical approaches, to find out the reason that the prices for the offline and online markets offer differ. Previous research on the price levels between conventional offline stores and online stores has been done through empirical approaches, however, the results are conflicting. Some ascribe the higher price of the online store to value addition such as convenience, and others presume that the online price is lower because of the increased market efficiency due to the lower transaction costs as Internet access becomes more prevalent.
The main result of the first purpose of this thesis is that if inconvenience associated with the online purchase (such as the cost of the Internet access, searching and other costs related to quality uncertainty and security risk, waiting time cost until the product is received) becomes smaller, the online price tends to exceed the offline price. These findings are supported by our empirical analysis, suggesting that the prices of the products with high uncertainty costs such as perfumes and cosmetics tend to be lower in the online market than the offline market, while the prices of the products with lower uncertainty costs such as game CDs, RAM and computer H/W are higher in the online market.
The second purpose of this study is to analyze the strategies related to the model of the conventional offline store entering the online market. Many offline stores enter the online market using their solid advantages such as brand equity and an existing customer base with comprehensive purchasing data. They are able to integrate marketing, economies of scale, and longtime experience with the logistics of order fulfillment and customer service.