Decisions of retail channel choices for the traditional retailer competing with a pure play online retailer

The rapid development of online retailing has promoted some top traditional retailers to implement the brick‐and‐click strategy by expanding business to online channel. While online channel usually implies lower operation cost, most consumers believe that they will bear disutility cost of purchasing online because of various disadvantages of online shopping. Considering such online disutility cost and the competition from a pure play online retailer, we investigate a traditional retailer's decisions on retail channel choices. In detail, we construct competitive pricing games between the traditional retailer and the pure play online retailer by assuming that consumers are heterogeneous in the online disutility cost, and that for each consumer, his online disutility cost from the online branch of the brick‐and‐mortar store is lower than that from the pure play online store. Equilibrium results show that introducing an online branch helps the traditional retailer improve overall profitability under certain conditions.