The coopetition between an online retailer and its franchise offline store: the effect of loyal consumers

This paper explores whether a reputable online retailer and a mom-and-pop offline store have the incentives to cooperate based on the wholesale model. The conventional view is that the online retailer may improve its profit by collaborating with an unknown offline store that expects to use the online retailer’s brand. However, authorizing the online retailer’s brand to the offline store diverts the online retailer’s loyal consumers so that there may result in an intensified competition between the two parties. To examine this trade-off, we develop a theoretical economic model that includes loyal consumers. The results show that whether the two parties have the incentive to cooperate depends on the fixed payment fee of using the brand and the number of loyal consumers. Particularly, the two parties can charge higher prices under the case of cooperation only when the number of loyal consumers is lower than a threshold. Our results also show that cooperation increases overall consumer welfare if and only if the number of loyal consumers is high. A win–win–win region exists among the online retailer, the offline store, and consumers in some cases.