This paper explains four things in a unified way. First, how e-commerce can
generate price equilibria where physical shops either compete with virtual
shops for consumers with Internet access, or alternatively, sell only to
consumers with no Internet access. Second, how these price equilibria might
involve price dispersion on-line. Third, why prices may be higher on-line.
Fourth, why established firms can, but need not, be more reluctant than newly
created firm to adopt e-commerce. For this purpose we develop a model where
e-commerce reduces consumers' search costs, involves trade-offs for consumers,
and reduces retailing costs.Comment: 29th TPRC Conference, 200
