Dynamic Pricing Strategies Between Online and Off-Line Retailers Based on Switching Costs

Abstract

With the development of e-commerce, online purchasing has made competitions among retailers fiercer than ever. Access on the internet influences traditional purchasing access inevitably. In this paper, the author uses Hotelling model to simulate the dynamic pricing process between online retailers and off-line retailers by the two steps game model. It gives a straightforward demonstration of the dynamic game process and results between the two retailers--online and off-line. Via the solutions of the model, it is revealed that the preference between online purchase and off-line purchase, as well as switching costs, have a direct impact on pricing strategy of retailers. This paper makes a clear and close analysis of the impact, holding that with the existence of long-term profit, competitors will choose to lower the price to win over consumers.