Essays on the impact of the internet on distribution channel management

Internet commerce has grown at a torrid pace over the last decade. The explosive growth in Internet usage has changed the way companies do business. The purpose of this thesis is to investigate the impact of the Internet on distribution channels. This thesis consists of three essays. The first essay (chapter 2) examines the impact of the introduction of an Internet channel by exploring the following research questions: 1) What are the similarities and differences between adding a new physical store and adding an Internet channel to a conventional distribution channel? 2) What are the strategic underlying effects that shape the overall impact of the Internet channel introduction on the market? 3) Under what conditions is the introduction of an Internet channel beneficial or harmful to each channel member? 4) Does a manufacturer always prefer disintermediation? These questions are explored within a game theoretic model that extends the existing models in the literature by distinguishing the theoretical difference between the Internet and the physical channel, and by capturing the heterogeneity in buyer preference for the two types of channel. The closed-form equilibrium solutions of the model reveal five key underlying effects that shape the overall impact of the introduction of an Internet channel. The results also indicate that coordinating a mixed channel is a different managerial problem from coordinating between two physical stores. The second essay (chapter 3) extends the model used in essay 1 (chapter 2), developing a general model to examine the impact of a newly introduced Internet channel in various multi-product, multi-outlet market conditions. A set of assumptions made in the first essay is relaxed to allow the exploration of the impact of various market environments on a firm's optimal channel strategy in related to Internet channel introduction. This flexible model relaxes the assumption of the symmetric distribution of consumer heterogeneity in the first essay, by varying the distribution of consumers on one dimension while holding the other constant. The assumption of a monopoly manufacturer is also relaxed by introducing manufacturer-level competition, in which two firms produce horizontally differentiated products. In the process, this essay investigates the impact of the degree of product and store competition on various market outcomes associated with the Internet channel introduction. Numerical analyses are conducted for equilibrium solutions in order to overcome the mathematical complexity of this model. The results indicate that the strategic underlying effects identified in essay 1 (chapter 2) shape the overall impact of the introduction of an Internet outlet under various market conditions. However, the relative impact size of each underlying strategic effect varies depending on market conditions and channel structure. This essay reveals that the distribution of consumer heterogeneity, the channel structure, the locations of physical stores, and the product positioning in a market are important factors influencing the specific impact of the introduction of an Internet channel on each individual channel member. The third essay (chapter 4) explores the adoption and the impact of Internet channels in the trucking industry. Two of the main elements considered are electronic transportation exchanges and company Websites. Six case studies are conducted in order to identify the key factors that influence a firm's choice concerning the adoption of Internet channels. Based on these case studies, we generate a set of testable propositions that can be used as a foundation for future theoretical and empirical research. The case analyses highlight six main factors that influence the adoption and the impact of the Internet channels: size of the firm, percentage of business on the ongoing relationships, degree of fragmentation of the industry, transaction size, density of the network, and size of the network. This case study also suggests that, while it is likely that Internet channels will not entirely eliminate the roles of traditional intermediaries, the traditional intermediaries should alter the nature of their value-adding services in the long run to remain viable. Therefore, we expect to see the prevalence of a new kind of intermediary in the near future, one who combines the expertise of traditional intermediaries with the efficient tools of electronic intermediaries.Business, Sauder School ofGraduat