Presentation of the paper

Does online shopping crowd out traditional business? Evidence from a hybrid retailer

Speaker
Andrea Pozzi
EIEF - Einaudi Institute for Economics and Finance

Abstract

I estimate the amount of crowding out of online business on brick-and-mortar sales for a retailer operating on both distribution channels. Using rich and detailed panel data on households' shopping trips I find that a substantial fraction of sales on the online channel represents new business for the retailer, rather than business stealing from its own brick-and-mortar stores. The result is confirmed even after controlling for potential sources of endogeneity and other confounds. I argue that selling on the online channel allows the retailer to steal business from its competitors and I explore the heterogeneity in the substitution pattern between online and in-store sales to confirm that intuition. Indeed, the displacement of own sales is stronger when there is less scope for business stealing. In particular, I show that the retailer suffers more crowding out of brick-and-mortar sales for more loyal customers and in product categories where it holds higher market shares. My findings reconcile the low level of crowding out at the firm level with the nearly perfect substitution between online and brick-and-mortar sales traditionally observed at the industry level and help explaining the recent success of hybrid-retailing.

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