Andrea Pozzi (EIEF)

“The Effect of Internet Distribution on Brick-and-mortar Sales”

abstract

I study the introduction of an online shopping service for a large supermarket chain that also operates a wide network of brick-and-mortar stores. The establishment of the Internet channel led to a 13 percent increase in overall revenues, inducing only limited cannibalization on traditional sales. I provide insights on the mechanism behind this result. I show that selling on the web removes travel costs and helps the retailer to attract new business from customers living far away from its stores. I also document that revenues increase more in markets where the chain faces more competitors. This suggests that the new sales represent in part business diverted from rival supermarkets.