| Summary: | 碩士 === 國立臺灣大學 === 商學研究所 === 89 === This paper intends to explore two effects of the Internet channel on firm’s product and channel strategies: First, the Internet allows firms to transmit digital product attributes to online consumers efficiently, which cannot be achieved through conventional channels. This gives firms incentives to improve product quality after the emergence of the Internet. Second, the Internet makes location irrelevant and thus forces firms to compete with each other directly without the protection of the monopoly power created by geographic distance.
Using a game-theoretic framework, we consider the effects of “ the heterogeneity of consumers in their valuations for quality” and “ the proportion of Internet users,” on firms’ product and channel strategies. The results show that: (i) The higher the proportion of consumers who have access to the Internet and thus are informed about product quality, the higher incentives a firm has to improve product quality; (ii) Accordingly, the firm may adopt a niche strategy and target fewer segments. (iii) The emergence of the Internet channel may lead the firm of high quality to signal its type by giving up the conventional channel. It happens because unlike a firm of low quality, a high quality firm, by giving up the conventional channel and hence the consumers without access to the Internet, is able to charge a higher price to online consumers who appreciate the high quality of the product. Thus, using only the Internet channel can be the optimal channel strategy for a high quality firm after the Internet; (iv) Internet provides an entrant opportunities to enter the market with a differentiated product; (v) The Internet eliminates the physical distance, which in turn encourages firms to invest in horizontal product differentiation.
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