Monetizing Showrooming

This paper explores how a strategic retailer (e.g., Best Buy) monetizes its showrooming service and its impact on brands' (e-tailers') competition and social welfare. We conduct an equilibrium analysis of duopoly brands in a horizontal market and a vertical market, and compare the results to those obtained when showrooming service is free. Under the horizontal market, our results show that costly showrooming will ``weaken" one brand by keeping it out of the showroom, creating strong incentive for the other brand to invest in showrooming service, whereas free showrooming always let both brand showcase their products. Interestingly, under costly showrooming, the brand that does not showcase its product can also benefit from its rival's showrooming. Thus, although the showrooming fee is solely paid by the showrooming brand, such a cost is ``partially" shared by the other brand due to the softened competition. In addition, our results show that free showrooming always reduces consumer surplus and social welfare but costly showrooming decreases the chance that consumers leave the market without buying any brand, and thus reduces consumer surplus to a less extent and might create an ``All-Win" situation (except consumers). We also study a vertical market and show some new results: when showrooming service is free, low-quality brand never solely showcases its product and there exists an ``All-Win" area in which all agents (brands, retailer, consumers, and social planner) benefit. However, when showrooming is costly, such an ``All-Win" area may not exist, depending on the key role played by showrooming: improving matching between consumers' taste and product value or improving consumers' shopping acceptance.